An Introduction

A Gas Sale and Purchase Agreement (GSPA) is the key agreement detailing the sale and purchase of a quantity of natural gas. Natural Gas is an invisible product and is a major source of clean energy. Natural gas can either be associated gas or non-associated gas.

• Associated gas: Natural gas that comes from crude oil wells;
• Non-associated gas: Natural gas from gas wells and from condensate wells, in which there is little or no crude oil. It is also called free gas.

A GSPA can be a supply contract or a depletion contract. It can be short, medium or long term.

1. Supply contract: Here, the seller commits to deliver specified quantities of gas to the buyer with a degree of flexibility in terms of the source of supply. The quantity and any requirements about time of delivery are clearly stated. The characteristics of supply contract are;
2. Fixed Contract Length,
3. No Dedicated Reservoir,
4. Obligation on Seller to secure additional reserves if the primary source of supply is insufficient, etc.
5. Depletion Contract: Here, all the gas produced from the reserves attributable to the seller’s specified interest is committed to sale under one contract alone for the term of that contract. Its features include;
6. Dedicated Source of Supply,
7. No obligation on Seller to secure additional reserves to meet supply obligation, etc.

A GSPA is essentially a sale of goods contract and therefore should cover the following:

• Title to the Gas,
• Risk in the goods,
• Quantities,
• Duration and renewal of the contract,
• Transfer of title and risk in the goods,
• Force majeure, etc.

This is just an introduction. Next week, we will consider the principal contractual terms of a Gas Sale and Purchase Agreement. See you!

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