Price reopeners—challenges and opportunities*

Abstract

The long-term sale and purchase agreements which have long under-pinned the LNG business have seen increasing sophistication in their price review provisions and price re-openers in recent years. But, for all the contractual ingenuity and foresight of these provisions at the time these agreements are entered into, the emergence of connected geographical markets and the increasing volatility of price and volume risk have meant that these provisions are now regularly applied and a number of these provisions found wanting when submitted to practical application.

Among the factors that have contributed to these difficulties are recent changes in the commercial and political aims of a number of the important producer economies and the rapid change in the circumstances of a number of the economies of those states and regions that are consumers of LNG.

This paper contemplates the ways in which today’s circumstances are putting increased stress on these traditional provisions and looks particularly at the challenges of developing effective strategies to mitigate risks and enhance opportunities while maintaining relationships during periods of disagreement.

It also includes case studies that highlight some of the issues of triggering price re-openers and then managing their progress through the resulting re-negotiations or, increasingly, arbitrations and expert determinations.

These case studies include reviews of published decisions on price re-openers and analyses of some of the more usual contractual provisions found in the price and price clauses revision of long-term LNG sale and purchase agreements.