Adapting international natural gas and LNG agreements in the light of the energy transition

Abstract

Abstract This article will examine the bidirectional relationship between private energy contracts and the transition towards a net-zero world. It will focus on long-term take-or-pay natural gas and liquefied natural gas sale and purchase agreements (natural gas and LNG SPAs) that are commonly used in the natural gas sector. These agreements often contain highly restrictive clauses that are designed to ensure stability of supply and demand, which makes them suitable for acquiring the project financing necessary for large capital-intensive energy projects. At the same time, these agreements create an important lock-in effect for the contracting parties. This article will examine the details of gas SPAs from the perspective of this lock-in effect. It will show that current contractual formulations do not provide an adequate solution in the context of the energy transition. Because of this lock-in effect, there is an urgent need to adapt existing contract forms for future use, and to modify the continued application of existing executory contracts to accommodate new realities.