A number of global LNG export projects – existing, under construction and planned – process (or will process) natural gas produced from unitized gas fields. Gas produced from unitized gas fields supplies six existing operational LNG export projects – PNG in Papua New Guinea, Tangguh in Indonesia, Snøhvit in Norway, Darwin in Australia, Gorgon in Australia, and Bontang in Indonesia. An additional LNG export project under construction will process gas from unitized fields – Wheatstone in Australia, and at least two planned LNG export projects will process unitized gas, including the Mozambique LNG project which will liquefy gas from both non-unitized and unitized fields in the Rovuma Basin offshore Mozambique. Further details about these LNG export projects are set out in the Annex of this article.
This article explores issues that are typically addressed in a Unitization and Unit Operating Agreement (UUOA) that may require particular attention in the scenario where the gas to be produced from the unitized area will be liquefied and exported as LNG (i.e., where the unitized reservoir is the upstream component of a dedicated LNG supply chain).
Considering the LNG Export Project Structure
Existing global LNG export projects generally fall within one of the following five project structures: (i) tolling; (ii) buy-sell; (iii) inside the concession; (iv) unincorporated joint venture; and (v) fully-integrated – depending largely on the commercial objectives of the LNG project sponsors (together with a range of other factors). These various project structures in turn accommodate different ownership models – ranging from complete symmetry between the ownership of the upstream interests (i.e., the participating interests in the concession) and the LNG export project (i.e., the liquefaction trains and associated infrastructure) to complete separation between the ownership of the upstream interests and ownership of the LNG export project.
It is likely to be the case that many of the provisions typically found in a UUOA, such as creation of the unit and the manner in which the unit will be operated, can be negotiated without the need to consider major impact on the wider LNG export project. However, as we discuss below, other provisions that are typically found in a UUOA will need to take into account the wider LNG project to ensure that the upstream component of the LNG supply chain goes hand-in-hand with the associated LNG export project and does not impact its viability.
The observations in this article are intended to apply to LNG export projects in general rather than to a specific project or project model; and assume that there is (at least some) common ownership between the upstream unit and the midstream LNG export project. Each LNG project is different and our comments should be considered in light of the relevant project structure and ownership model.
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