The Guide To Energy Arbitrations, Seventh Edition - LNG Arbitrations

K&L Gates continues to formulate strategies for reducing legal risk in the supply of liquefied natural gas as well as in the supply of gas, oil products, green fuels and other commodities.

K&L Gates energy partners Ben Holland and Steven Sparling, have published an updated chapter on ‘LNG Arbitrations’ for the latest (7th) edition of Global Arbitration Review’s (GAR) ‘Guide to Energy Arbitrations,’ 

The updated chapter addresses key trends in the evolving LNG market and identifies the principal areas where disputes arise in LNG sale and purchase agreements (SPAs), including: 

• Disputes relating to the failure to supply LNG, including: 
• Missed or diverted LNG cargoes, particularly in high-price markets
• Disputes around commercial operations date (COD) and delayed facility readiness
• Seller refusal to meet upwards flexibility (UQT) requests
• Reliance on hardship provisions by sellers
• Other failures to deliver, including obligations to source alternative supply
• The challenges of asserting force majeure, including: 
• Strict notice and causation requirements
• Limitations of economic hardship as a qualifying event
• Mitigation obligations and alternative sourcing
• Force majeure impacts on both cargo delivery and project development
• Disputes relating to oversupply and failure to take LNG, including: 
• Take-or-pay and take-and-pay obligations and their enforceability
• Exercise and limitation of downwards flexibility (DQT)
• Hardship claims by buyers in response to structural demand shifts
• Damages and liability where buyers fail to take delivery

The chapter also examines the operation of contractual protections and external doctrines, with a focus on: 

• Issues arising from delays in the construction and commissioning of LNG facilities, including: 
• Long-stop dates and termination rights
• Challenges to the validity of prolonged force majeure claims
• Early termination risks prior to long-stop dates

Further sections address operational and commercial disputes in LNG trading, including: 

• Rescheduling, diversions and destination flexibility, including: 
• Rights and limitations on cargo rescheduling
• Diversion rights and associated profit-sharing mechanisms
• Competition law constraints on destination restrictions (notably in the EU and Japan)
• Reloading of LNG as an alternative to diversion and its associated costs and constraints
• Terminal capacity and risk allocation, including: 
• Liability for damage to terminals
• Allocation of risk between buyer, seller and vessel operators
• Insurance and indemnity considerations
• Pricing disputes, including: 
• The growing influence of US LNG pricing models
• Increased transparency and benchmarking pressures
• The continued evolution of price review and hardship provisions

LNG remains one of the key connectors of global trade, linking markets across vast distances and playing a critical role as a transition fuel in a changing energy landscape. Against a backdrop of geopolitical disruption, sanctions, energy transition pressures and increased market volatility, the LNG sector continues to generate complex, high-value disputes cementing its position as a significant driver of international arbitration activity.

Read LNG disputes chapter here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.