Tolling Agreement Risks
The lifting, measurement and allocation conditions are generally incorporated into the toll agreement; However, these conditions can also be included in a stand-alone agreement signed by all paying customers, which facilitates the flow of information, among other things, for the development of the supply plan for supply of gas, the annual LNG lifting program, the allocation of LNG and by-products, the standards and inspections of ships and the determination of liability. The annual LNG delivery program should be developed on the basis of information provided by all toll customers and implemented indiscriminately. The development of the annual delivery program is generally fluid and involves cooperation between project participants. Through the annual delivery program, the customers they need will drive their LNG by-products and derivatives to third parties, monetizing their gas rights. All project participants collect annual information on planned facility maintenance and dismantling, gas supply forecasts and other relevant projected events that will affect or impact the progress of the delivery program. The annual delivery program is generally refined each month when the 90-day schedule is developed. This schedule reflects changes to the annual delivery program and defines the lifting plan. Toll systems are complex and critical elements of the structure of the LNG project. As part of the toll and repeal agreement, a mechanism is used to allocate LNG to project participants and monetize their gas applications. The number of third-party tolls in the United States is increasing due to increased commercialization of large gas reserves in areas with mature infrastructure and network access to liquefaction facilities. The many North American projects under development and at an early stage of conceptualization certainly show this growth. The royalty structure in a third-party toll contract is generally intended to provide a return at supply levels, as the toll company takes a limited risk.
The pricing interaction is fuelled by (i) investments in facility construction, operating costs and a fair profit margin for investors who take the risk of the project; and (ii) ongoing market price discussions with LNG buyers who, in some cases, hope to link oil-based index prices to gas-based indices. Market pricing should not be addressed in this document, except that pricing discussions and decisions will certainly play a role in the viability of many of the proposed projects in North America. You will also receive operating and maintenance payments as well as a starting payment for the start-up of the turbine. Project sponsors are also subject to various penalties if they do not meet the toll company`s expectations, including the construction of the facility in a timely manner. It has become a hot topic in the negotiations. Equipment manufacturers first find it difficult to meet delivery deadlines. There are also problems with defective or poorly mounted components, Feldman said. Many developers are trying to pass on some of the risks associated with the delivery of the facilities to the contractor.
Other important concepts discussed in a third-party toll agreement include maintenance, development of LNG liquefaction facilities, and the quality of gas and LNG. Preservation is usually done on a pro-rata basis, not on the object. On the contrary, the rights to new capacity in the event of an extension of LNG liquefaction capacity can be very important for some paying customers and are sometimes the subject of important negotiations. In addition, toll agreements used for a project in which there are several toll customers must be consistent in compliance with gas and LNG specifications. If the required gas specifications are not met, this will result in a significant liability for the paying customer who supplied exhaust gases.