What is the "Profit Share Mechanism"?

PSM applies when buyer sells the cargo to seller's consent elsewhere they agreed in agreement and in this case buyer should divide the benefit by seller if any, with the ratio already reached to agreed with seller. However in most situation if buyer suffer any lost, it should compensate seller respect to agreed price in agreement. Recently European Union declared his intention to delete PSM from all agreements destined to Europe countries and are based on FOB.

what's the Force Majeure Case?

Force Majeure is the circumstance which the party would be release from his obligation if it is in FM.In such a condition the party that is in FM has not to pay any penalty to other party due to breaching contact terms because he had not control to prevent it.
Question:Suppose that two party have a fob contract and the buyer is shipping the given cargo to his terminal in definite destination.In the half way a terrorist explosion happen in the terminal and the buyer announce the FM.so Who should got the liability? Of course the buyer why? Because the contract is fob base and total risk and liability had transfered to buyer in loading terminal.

What is the "KTA"?

KTA or Key Terms Agreement is a kind of contract that enter into and being initiate between buyer and seller for deal a LNG in the first step of negotiation as a framework for way forward.However there are several kinds of agreement that could be instead of KTA and ofcourse have a same application.These are HOA or MOU as a abbreviation of Heads Of Agreement and Memorandum Of Understanding.These all of documents cover most important of terms that consent on that is a necessary for moving ahead in negotition rounds.Some main terms are pricing mechanism , tow side flexibilities , destination of cargo and contract volume.

What is the "Buyer On-sale Volume"?

"Buyer On-sale Volume" is a phrase that has been using in the LNG contracts.Somtimes buyers are not end users themselves and they sale to other smaller customers.In this case they need to get a seller's consent for selling the purchased cargo to smaller buyers upon the agreed contract.Such volume called as a "Buyer On-sale Volume".This means that seller give a flexibility to buyer for divert the total or some part of purchased cargo.This flexibility is much restricted.In the other word the seller give a such advantage to buyer just in the very small market that it does not threat his benefit.

What is the "basis differential"?

LNG industry is undergoing some changes by new regulation due to Liberalization and Privatization.The most important change would be in the Pricing formation model as a aim of such restructuring. the purpose of restructuring is pricing based on Gas to Gas competition.So the new pricing model will be linked to gas indicator instead of oil as it was in LNG traditional trade. Since there is not a global LNG market then we should apply local Hubs indicators into pricing model as a reference point. In the other word many LNG import contracts in U.S. that have a geographic dispersion are linked to same market and same indicator such as Henry Hub.Therefore the transportation cost depends on their distance from the Hub would be different. In some cases the differences are significant so we should introduce a further item to pricing model to modify this differential that called "basis differential" or "place differential". This modifier measures the geographic dispersion of LNG contracts from the Hub market and of course it introduces new risk into pricing model.This risk will be transferred to seller totally because of buyer could resell his volume at the same market and price if he could not take the cargo.It is obvious that the contract that is closer to the reference point it would have also a lower risk.
In short,the pricing model has a further item that called place differential from reference point.
P LNG= C + Alfa * Hub indicator market+ Beta
In the Hub market Beta would be Zero.

Hegel's invisible hand in the LNG industry

The Hegelian process, Dialectic, says that when entity (thesis) transformed into its opposit (antithesis) the result of combination would be in the higher form that Hegel named it Synthesis.It seems that the same process is undergoing in the LNG industry.On the other word the traditional method of LNG trade (thesis) is subject to some changes by liberalization and privatization.So the new model of LNG trade is introducing to LNG industry that is based on free market and Gas to Gas competition.In this circumstances government monopoly can not be alive more because new regulations oblige the government to give a open access to all the buyers. This new model of LNG trade (antithesis) is acting exactly against of traditional LNG trade that has a exclusive nature.Now if the "Hegel's invisible hand" works right in accord with Dialectic theory so the combination of this two would be lead to higher form.
What is this higher form? Nobody knows that now.

What is the "Open Season" process?

Contracts to ship have a various types.But the bulk of shipment contracts on a gas pipeline are based on long term contracts that is known Firm Transportation (FT) commitments.
An FT commitments is a long term contract ,usually between 10 to 20 years, to pay for capacity to be shiped by pipeline and the shipper is obliged to "ship or pay" whether or not shipment is actually occured.The concept of S.O.P on a gas pipeline is similar to concept of T.O.P in the LNG industry.
This commitment is essential for validity of pipeline project.Since it ensures the financiers from the ability of project to generate of sufficient revenue to cover the project debts.
Building a new pipline requires to getting the certificates before construction.the process to obtain this certificates starts with the sponsors of a new gas pipeline holdings that is called an initial open season.At the open season the pipeline entity makes a request for potential shippers that have a capability to ship a gas by pipeline and are interested in FT commitment.This process provide following important information for pipeline entity:

1-Is there enough interest for FT commitment to carry project ahead?
2-is there a need to modify the project from the technical or other aspects?
3-is there a enough interest for financiers to obtaining construction financing?