Force Majeure and Termination.

Certain issues in gas supply agreement (upstream) and gas sales/power purchase agreements (downstream) must be integrated into the LNG SPA. Drafting difficulties are found in integrating Force Majeure provisions from up and down-stream agreements involving entities who are not parties to the SPA into the SPA.

SPA termination provisions must take into consideration: * Whether contracting entity is a single asset project financed entity; * Whether damages are payable for unexpired portion of SPA in the event of a repudiatory breach by such entity; * Where buyer contracting entity such as an IPP has an investment agreement/PPA containing a host government obligation to buy out IPP upon termination, seller must ascertain: * If it can secure access to any part of termination payment or if the host government entity will be obligated to novate the SPA; * How the termination and cure procedures in the PPA, including lenders' rights, will interact with performance/termination of the SPA.

Where LNG is sold on an FOB basis, LNG suppliers will consider negotiating a right to access the LNG Ship in the event of an SPA termination by seller for a buyer breach.

Quantities, Take-or-Pay/Make-Up, Failure to Supply: LNG buyer's aspirations, especially where customers are power generators, include: * Lowest possible take-or-pay level and maximum upward flexibility; * Seasonal flexibility (greater quantity in winter months); * Guaranteed availability of make-up cargoes; * High level of confidence in security of supply enabling low investment in back up fuel capacity; thus want default damages to fully cover increased costs & losses.

The nature and cost of LNG production and transportation make flexibility very expensive to give and thus will inevitably conflict with buyer's desire for lowest price. LNG buyers need to understand the limitations of LNG supply and determine the most cost effective way to deal with those limitations, which is likely to be at least to some extent best addressed in the design of their import terminal, storage, pipeline and gas consuming facilities, rather than in paying for supply redundancy in the LNG supply agreement.

As additional LNG import terminals are built, there are increased opportunities for buyers to co-operate with each other when negotiating for LNG supply. LNG suppliers traditionally have resisted allowing flexibility in the destination of cargoes but this is starting to change.

Issue of damages for seller default in making LNG cargoes available is difficult to resolve: * Seller's position is that the obligation is to deliver an annual quantity, whereas for buyer the timing of each cargo is significant and in certain high-demand periods, crucial; * Buyer wants to be covered for increased costs of obtaining alternative fuel as well as losses or damages suffered under its gas supply/power supply contracts and lost profits; seller wants to cap its liability, usually based on a percentage of the sale price.

Restrictions in seller's ability to supply contracted quantities, make-up and excess quantities will require prorating among all customers. Buyers may also ask for pre-emptive rights for expansion quantities.