Long-Term And Short-Term Export Contracts For Natural Gas Supply

Natural gas is exported in accordance with the terms and conditions of foreign trade contracts between the seller and the buyer. Research into the execution procedure, terms and conditions of such contracts has both theoretical and practical value. The importance of a foreign trade contract for relations between the parties cannot be overemphasized as its scope determines and legally binds the parties for the achievement of their respective goals. When entering into foreign trade contracts, the parties should consider the impact of natural gas extraction, processing, transportation, storage processes on terms of foreign trade transactions with natural gas. These terms are especially important for long-term natural gas export contracts which are considered to be the traditional form of natural gas trading. However, more recently, forms of foreign trade contracts for natural gas export used to interact with foreign buyers have become more diversified. Natural gas trading under short-term contracts using electronic trading platforms is becoming increasingly important. In this article, the author examines the key peculiarities of such contracts, defines basic advantages and disadvantages of using various contract forms for natural gas export.

Keywords

energy law, legal regime of natural gas as a subject matter of foreign trade transactions, contractual regulation of natural gas export

Received

06.08.2020

Publication date

04.09.2020

Number of characters

11914

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GOST	Koshman S. Long-Term And Short-Term Export Contracts For Natural Gas Supply // Energy law forum – 2020. – Issue 3 C. 103-107 [Electronic resource]. URL: https://mlcjournal.ru/S231243500022526-6-1 (circulation date: 29.04.2024). DOI: 10.18572/2410-4396-2020-3-103-107
MLA	Koshman, Sergey S "Long-Term And Short-Term Export Contracts For Natural Gas Supply." Energy law forum 3 (2020):103-107. DOI: 10.18572/2410-4396-2020-3-103-107
APA	Koshman S. (2020). Long-Term And Short-Term Export Contracts For Natural Gas Supply. Energy law forum (3), pp.103-107 DOI: 10.18572/2410-4396-2020-3-103-107


1	Research into the contractual regulation, specific nature of relations between contracting parties is one of the most pressing tasks of energy law. V.V. Romanova proposed a classification depending on the scope of the agreement which may include the delivery, processing, transportation of a certain energy resource, the storage of energy resources, the construction of a power facility, the supply of power equipment, the development of an innovative product to be used in the energy industry, etc., that can be applied for a legal analysis of contractual regulation in the energy sector [1]. According to this classification, V.V. Romanova divided contracts governing energy resource supply relations into subgroups depending on the energy resource type. One of these is a gas supply contract [2]. Examining the state of energy law and order in the gas industry, V.V. Romanova noted that the current state of the legal regulation of gas export is distinguished by the specific nature of the legal regime of gas as a subject matter of foreign trade transactions, the specific nature of the parties involved and the legal status of gas exporters, the specific nature of national and international legal regulation [3].
2	Depending on the stage of the production and distribution cycle, I.P. Marchukov considers the following to be the main civil law structures used for oil and gas distribution: 1) upstream contract structures necessary for access to oil and gas fields prospecting and development, as well as oil service contracts aimed directly at the exploration and development of oil and gas fields, 2) midstream contracts related to transportation, 3) downstream contracts governing processing and distribution [4].
3	L.I. Shevchenko, I.V. Gudkov proposed a classification of natural gas export contracts based on the supply contract subject matter [5]. As aptly noted by V.V. Romanova, the peculiarities of the legal regulation of export transactions in the energy sector are primarily associated with the specific nature of the energy resource as the main subject matter of export transactions [6]. In transactions for natural gas export via pipelines, this energy resource is natural gas supplied in its gaseous state. Continuous and smooth natural gas extraction, processing, transportation, storage processes are needed to export natural gas in the gaseous form.
4	For a long time, long-term natural gas export contracts have remained the main form of natural gas export. More recently, natural gas trading under short-term contracts using electronic trading platforms has become increasingly important, supplementing the existing conventional approach to natural gas export using long-term contracts.
5	Therefore, we suggest, for our purposes, using a classification of contracts by natural gas supply time in order to examine the peculiarities of contractual regulation of pipeline gas export. In this regard, the author would like to dwell on the key aspects of long-term and short-term natural gas export contracts.
6	Long-Term Natural Gas Export Contracts
7	As noted above, long-term contracts are the traditional form of contractual arrangements between the parties in relation to natural gas export via pipelines.
8	Specific nature of natural gas as a commodity supplied in the gaseous form necessitate creation and operation of a complex, costly infrastructure for its a) extraction, b) processing, transportation, d) storage. Natural gas is delivered to the buyer via pipelines that include a set of technical facilities, devices ensuring transmission of natural gas in the gas supply system, first of all, compressor plants and pipes. Return on gas infrastructure investments can be achieved either by government support measures, e.g., in the form of a temporary exemption from state duty for the exported natural gas for the exporter [7], assistance with obtaining necessary permits and approvals for the construction of gas mains, or using contractual regulation mechanisms.
9	The need for return on investments in the costly infrastructure has a direct impact on the scope of natural gas supply contracts.
10	One of the first examples of successful longterm cooperation in natural gas export is the Deal of the Century made between the USSR and West Germany in 1970, also known as Gas–Pipe. Under this deal, West Germany provided the USSR with large pipes and other equipment for the construction of a pipeline to Western Europe, and the USSR supplied its natural gas in return [8]. The Gas–Pipe deal had a major impact on further development of longterm relations in natural gas supply not only with West Germany, but with other European countries as well.
11	The example above illustrates the value of long-term natural gas supply contracts. Such contracts have a major impact on both natural gas supplier-buyer relations and relations between the states, since the execution of a longterm contract usually leads to gas infrastructure development, ensures reliable supply to the importer country, thus shaping energy security of the natural gas importer.

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