An introduction to tolling agreements in the LNG sector


Published by a UUÂãÁÄÖ±²¥ Energy expert
Practice notes

An introduction to tolling agreements in the LNG sector


Published by a UUÂãÁÄÖ±²¥ Energy expert

Practice notes
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Introduction

The business model underpinning a liquefied natural gas (LNG) project is of fundamental importance since this will determine the risk profile of the project as a whole and consequently, the type of financing that will be required. The choice will ultimately depend on a number of factors, including the risk appetite, fiscal and tax considerations and financing issues of the relevant investor as well as their interest in investing in one or more of the LNG chain segments (For more details on the LNG value chain, see Practice Note: LNG—an introduction).

LNG projects can be structured in a number of different ways:

  1. •

    integrated/non-integrated

  2. •

    merchant/tolling

In an integrated model, there is unity of ownership throughout the entire LNG chain, from production through to liquefaction—that is, one or more investors holding the underlying upstream concession/PSC also own the rights to the natural gas reserves. As a result, the upstream owners build the infrastructure which is necessary both to extract the natural gas from the ground as well as to monetise it—the LNG liquefaction/regasification

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Key definition:
LNG definition
What does LNG mean?

Liquefied natural gas (LNG) can be defined as meaning any combustible hydrocarbon or mixture of hydrocarbons consisting primarily of methane and including other combustible and non-combustible gases in a gaseous state which are in a liquid state at or near atmospheric pressure at sea level. LNG is a form of processed natural gas; through the process of liquefaction it is transformed into a liquid which enables it to be transported to its destination where the liquid is regasified for sale.

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