- Gas major BP has published its MSPA templates to contribute to the broader discussion around standardization and liquidity for LNG transactions.
- An MSPA is a complex framework agreement between two counterparties spelling out the general terms for their LNG deals.
- In 2017, international commodity trader Trafigura released an MSPA to encourage standardization of contracts in the LNG industry.
- MSPAs published by market players is a step towards greater transparency within the LNG industry.
According to an article published in Energy World, global oil and gas major BP has published its master sales and purchase contract templates for its LNG trading business.
LNG master sales and purchase agreement
Moreover, BP has urged its peers to do the same as well. The 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.”
Streamlined and standardization
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.
A BP spokeswoman told 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.”
Template for sale and purchase of crude oil
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 are widely used by other companies as well.
What is MSPA?
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.
Ensures greater transparency
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.
LNG spot rates set to grow
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 homogenous 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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Source: EnergyWorld
