Take Or Pay Gas Sales Agreement

OTC or payment rules are widespread in the energy sector due to the significant overhead costs for suppliers for the supply of energy units such as natural gas or crude oil and the volatility of energy commodity prices. For example, the overhead costs associated with the supply of crude oil compared to a discount are very high. 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. One of the fundamental principles of Directive 2009/73/EC[8] is in particular the possibility of allowing third parties access to the natural gas transmission system, i.e. any supplier may have access to it. In this context, derogations from this rule may be requested where another natural gas company that already has access to the network demonstrates that it is experiencing economic and financial difficulties as a result of the take or pay clause it has received[9]. Take or pay contracts are common in the energy sector and, in particular, in the sale of gas. These provisions are intended to ensure that the seller receives a guaranteed revenue stream under the agreement, regardless of the quantities actually received by the buyer. They often operate where the supplier had to make significant debts and capital commitments for the project to be launched.

(At the same time, of course, buyers often had to make commitments themselves; consider regattas in an LNG project.) Therefore, the seller is required to invoke and demonstrate that the seller continues to suffer losses related to its contract with the supplier after the performance of contracts with its customers through the take or pay clause. In the past, the Supreme Court of England and Wales has also considered whether these clauses are prohibited as an excessive penalty that is not compensatory, given that the rule does not allow the enforcement of a contractual sentence against a party who has breached the agreement. . . .