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Energy and Resources BP publishes LNG contract templates to push industry standardisation

FILE PHOTO: The BP logo at a petrol station in Kloten, Switzerland, October 3, 2017. REUTERS/Arnd Wiegmann/File Photo

Arnd Wiegmann/Reuters

Global oil and gas major BP has published its master sales and purchase contract templates for its liquefied natural gas (LNG) trading business and says it is the first of its peers to do so.

BP, which has a global LNG portfolio made up of volumes it has produced or bought, said on its website it expects that publishing its LNG master sales and purchase agreement (MSPA) templates will “contribute to the broader discussion around standardization and liquidity for LNG transactions.”

The LNG industry has been pushing to streamline and standardize the contracts that govern its market to cut down on red tape and lengthy negotiations to speed up the commodity’s transition to an oil-like trading model.

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A BP spokeswoman told Reuters on Friday the company published the free-on-board MSPA template this week and a delivered ex-ship template in April as part of efforts to drive “simplification, standardization and liquidity in LNG markets.”

BP already has a standardized template – known as its general terms and conditions (GT&Cs) – for the sale and purchase of crude oil and refined oil products that is widely used by other companies as well.

An MSPA is a complex framework agreement between two counterparties spelling out the general terms for their LNG deals. Unlike in oil markets, where standardized GT&Cs like BP’s provide a framework for traders to refer to, in LNG markets, companies typically draft separate contracts for every deal.

Companies have to draft several MSPAs before conducting an actual trade, spending time, money and resources in a process that can range from minutes to weeks or longer.

In 2017, international commodity trader Trafigura also released an MSPA to encourage standardization of contracts in the LNG industry.

The publication of standard-form MSPAs by market players rather than industry bodies is potentially a step towards greater transparency within the LNG industry, said Jessica Ham, a lawyer with legal firm Ashurst, which handles LNG contracts.

“Particularly if other portfolio sellers and traders follow suit, (it) could be helpful in promoting discussion around how contracting parties can increase efficiency to respond to the faster pace at which the spot LNG market is moving in recent times and the greater liquidity,” she said.

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With LNG spot volumes expected to grow as new liquefaction projects come online, standardized contracts could lower entry barriers and attract more companies to the market, according to industry participants.

Since the third quarter of last year, bids, offers and trades reported to pricing agency S&P Global Platts as part of its pricing process have become “significantly more homogeneous with regards to the terms used,” said Ciaran Roe, global director of the company’s LNG division.

These terms include nomination deadlines for the delivery port, the loading port and the LNG carrier for use in a trade, Roe said.

Platts assesses the widely adopted Japan-Korea-Marker (JKM) in the Asian spot market.

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