Take Or Pay Tolling Agreement

Regardless of the chosen formulation of the take and pay contractual structure, the use of an OTC and payment contractual structure offers, from the seller`s point of view, two additional advantages over the contractual or payment structure. First, from a cash flow perspective, corrective actions taken and paid for are usually charged per load and the buyer`s liability applies to any cargo (or part) that it does not take. As noted above, as part of the take or pay contract structure, the buyer`s liability for an over-the-counter or payment payment is usually calculated and is due annually at the end of each evaluation period. This means that, if the buyer does not take several loads (or parts) during a contract year, there will be no financial impact on the buyer before the end of the current evaluation period. On the other hand, the seller`s use of an OTC and payment contractual structure, in which the buyer`s performance errors result in real-time payment obligations, can effectively provide the seller with a more regular and timely cash flow. Due to the more direct and prompt payment of the buyer`s payment obligations resulting from the fact that it has not taken the necessary quantities of LNG under another contractual structure by mutual agreement and payment, the seller is also significantly less exposed to the buyer`s short-term credit risks. This protection is strengthened when this contractual structure is accompanied by an additional right of the seller to exercise a provisional right of suspension of services, which is immediately triggered when the buyer violates its payment obligation, in addition to the traditional rights of termination of the seller`s contract, which become available after formal notice by the seller and the buyer has not cured the late payment until the expiry of the additional period n vigour. One of the other two common contractual structures in the LNG industry is an over-the-counter and payment contractual structure that has recently proven to be the typical structure for many of the current spot and portfolio LNG sales. Take or pay contracts provide an incentive for energy suppliers to invest capital in advance, as they have a degree of certainty about their certainty about their certainty about being able to sell their products. In the absence of take-off or payment rules, suppliers bear the entire risk that the buyer`s persistent energy needs will run out or that a change in price may induce the buyer to break the contract.

Suppliers could also be exposed to a hold-up by buyers if they have made overhead investments that lose value, if the buyer does not buy the production as agreed, without the guaranteed minimum revenues of a take-or-buy contract. Hold-ups are a type of transaction costs identified by economist Oliver Williamson that occur in this type of relational assets. The other alternative structure is a take or cancel structure, a somewhat new type of contractual structure that was developed from the recent release of LNG export projects to the United States powered by a very liquid and deep inland transportation gas system. . . .