LNG pricing trends and key considerations
Jacques van Rhyn A and Janelle Sadri ADeloitte Touche Tohmatsu.
The APPEA Journal 55(2) 417-417 https://doi.org/10.1071/AJ14052
Published: 2015
Abstract
Historically, LNG has been sold through long-term contracts with limited flexibility in volume and price. LNG trade patterns have evolved significantly, adding to increased sales of multiple cargoes on the spot market, brokered trades and speculative trading positions being taken up by non-traditional players.
Buyers in the Asia-Pacific region are keen to secure supply for local markets, while Australian producers, particularly subsidiaries of foreign headquartered groups, are under pressure to sell at competitive prices.
From a transfer pricing perspective, the Australian Taxation Office (ATO) has placed increased scrutiny on the commerciality of arrangements, arm’s length outcomes and profit allocations between Australian taxpayers and their international-related parties (e.g. marketing and trading hubs).
This extended abstract covers:
factors that could impact on the selection of a price index and the slope or gradient to be applied in pricing formulae;
blended pricing based on an average of different indices, and why pooling and trading may make commercial sense, although revenue authorities may not look favourably upon it;
the importance of the contractual terms, the market situation and the other commercial contract conditions on the pricing of related party LNG sales; and,
the value in potentially seeking an advanced pricing agreement in a related party LNG pricing context, given the significance of the transactions.
Given the practical and commercial challenges facing the industry and with several projects commencing production in the relatively near future, this is very topical. The authors use case studies to illustrate the key concepts.
Jacques van Rhyn has an LLB and a B.Juris from the University of Potchefstroom, South Africa, and is a notary and conveyancer and admitted to the Supreme Court of that country. He is an international tax and transfer pricing partner. Practising for 23 years, he has extensive experience advising oil and gas/oilfield services companies on various cross-border tax and transfer pricing issues including the structuring of international operations to achieve sustainable and defensible tax risk management policies. He has led a number of significant transfer pricing cases and audits, and negotiated favourable APAs in several jurisdictions. He has been listed in Euromoney’s Expert Guide to the World’s Leading Transfer Pricing Advisers—South Africa and Australia. |
Janelle Sadri has an LLB and a BCom from the University of Western Australia and a Diploma in Tax from Melbourne University. She has more than 10 years’ experience in assisting multinationals with transfer pricing planning, controversy management and compliance. Janelle is experienced in all facets of transfer pricing in Australia having worked for clients in the oil and gas, oilfield and shipping sectors. She has also been involved in several major business restructurings that involved the movement of key profit driving functions and the migration of IP. She has advised clients on LNG/LPG sales, LNG marketing services transactions and the arm’s length principle in a PRRT context. Janelle has published articles on APAs, business restructures/IP migration and Australia’s most recent transfer pricing legislative reforms, and presented to the CPA and the Tax Institute of Australia on transfer pricing. |
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