LNG Sale And Purchase Agreement Destination Restrictions Likely Anticompetitive

In Short

Background: Contracts for the sale of LNG traditionally limit the ability of the liquefied natural gas buyer to freely resell the cargoes acquired under the contract. This helps LNG sellers manage their markets and operations but also limits the ability of LNG buyers to optimize their supply arrangements over time. With Japan entering a period of excess LNG, such restrictions are receiving increasing scrutiny both from buyers and the Japanese government.

The Report: The Japan Fair Trade Commission conducted a survey and published a report finding that destination restrictions in many LNG sale and purchase agreements (especially those with FOB delivery terms) are likely to be in violation of the Antimonopoly Act. This finding itself was not unexpected, but the detail of what this nonbinding finding means for different classes of existing and future LNG contracts warrants careful attention.