An introduction to take-or-pay clauses in energy contracts


Produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP
Practice notes

An introduction to take-or-pay clauses in energy contracts


Produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP

Practice notes
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This Practice Note introduces take-or-pay clauses in the energy sector and considers some of the regulatory and competition law issues regularly encountered when considering take-or-pay clauses in the energy contracts.

For more information on drafting take-or-pay clauses and the common features of such clauses, see Practice Note: Drafting take-or-pay clauses in energy contracts.

For more information on to English Court’s attitude to take-or-pay clauses and a thorough consideration of take-or-pay clauses and the rule on penalties, see Practice Note: Take-or-pay clauses in energy contracts: the rule on penalties.

Introduction to ‘take-or-pay’ clauses in the energy sector

A take-or-pay clause is a contractual provision whereby a buyer agrees to pay for a minimum quantity of a good, or service, to which the relevant contract relates, whether or not that minimum quantity is taken by the buyer.

Take-or-pay clauses are used in contracts across a range of industries. In the energy sector, such clauses are commonly found in liquefied natural gas (‘LNG’)

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United Kingdom
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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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