Take-or-pay contract

Take- or-pay contracts, short ToP contracts are contracts between producers and wholesalers in the gas industry with long lead times of up to 25 years. The contents are usually only roughly known.

Under these agreements, the producer undertakes to deliver gas to a specified annual or annual amount. The buyer undertakes to pay a fixed amount to be paid, regardless of whether he actually asks this amount. Due to the very long maturities no fixed deterministic prices are generally agreed. Instead, price adjustments are made or specified conditions for renegotiations. The determination of the price often takes place through a so-called netback calculation. The netback market value for a specific customer group is calculated at the point of import by the lowest price from a competing energy source (eg, the price of crude oil, fuel oil, coal), less the cost of transportation, storage, measurement, control, etc. The development of the weighted, average netback value of all gas customers groups results in the escalation clause of gas import contract.

This type of pricing that is based on the prices of competing fuels, the maximum utilization of the pipeline infrastructure is ensured. In addition, this pricing leads to a special allocation of risk between producers and importers. Here are the risks of the gas industry on the one hand in the development of the price of competing energy sources and the other in a general market risk arising from unforeseen economic fluctuations, changes in preferences as well as technical developments and by the competition between the companies in the gas industry.

Through the provision of price fluctuations of the competing sources of energy to producers bear this price risk, while importers carry the amount of risk due to changing market conditions. This amount of risk could be reduced even further in the past by the access to the transmission and distribution networks in a given service area was always only a particular company open and could be completely denied third party. The importers were able to predict the long-term resulting demand relatively safe and reduce their amount of risk. The introduction of a gas-to- gas competition or a so-called Third Party Access ( ie the opening of access to the transport networks for others) this option is omitted, however ( at least partially ) because third party access will be open to a supply area. The existence of ToP contracts seems to be called into question.

• Natural gas trading
• Business Law
• Contract