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Nina Howell, Garry Pegg

installing any additional equipment or infrastructure that is required at the


processing facility), the gas producer is likely to suffer substantial loss from lost or
deferred production. It is also likely that the gas producer will incur liability to a gas
buyer who is expecting to purchase volumes of gas from the commencement date
under a gas sales agreement with the gas producer. The gas producer will seek to
offset this liability under the gas processing agreement. Typically, the gas producer
will seek monetary compensation to offset any liability it incurs under its gas sales
agreements and the facility owner will seek to limit the amount of compensation it
is willing to pay to the gas producer (if any). There will usually be discussion about
whether the parties can recover consequential loss (see Section 5.10) and the
outcome of this discussion may affect the extent to which the gas producer can
recover its losses from the facility owner. The usual exclusions from liability will
apply for force majeure (see Section 5.12).
For the facility owner, the commencement date marks the time when the gas
producers send-or-pay obligation commences, so the gas producer is obliged (with
very limited exceptions) to pay the tariff to the facility owner from this date even if
the gas producer is not ready to start deliveries to the gas processing facility.

5.4 Capacity reservations


This clause will reserve for the gas producer an agreed level of capacity in the facility.
The facility owner will sterilise this capacity so that it can only be utilised by the gas
producer. The gas producer will be under an obligation to make a capacity payment
(see Section 5.6 below) for a portion of that reserved capacity whether it is used or
not and irrespective of the quantity of gas that is actually processed. This send-or-pay
(or minimum bill) obligation guarantees a minimum revenue stream for the facility
owner and guarantees the gas producer a minimum level of capacity in the gas
processing facility.
It is common for the facility owner to accept gas for processing over the nominated
firm capacity (excess gas) on a reasonable-endeavours or discretionary basis.

5.5 Tariff
As mentioned at Section 5.2 above, the facility owner will charge the gas producer a
tariff in relation to the tariff services. The tariff is normally expressed as a formula
assessed on the volume of gas processed at the facility. In charging the tariff, the
facility owner is looking to recover both infrastructure and operating costs whilst
receiving a return on the business of processing the gas.
There may be regulatory issues to consider in charging a tariff to the gas producer
especially in relation to the Gas Act 1995 and third-party access to the facility (see
Section 3.1). In summary, the tariff must be fair and reasonable.
The agreement should also stipulate the currency under which the tariff is
payable and deal with indexing the tariff to take into account general inflation.
Mention should be made as to whether any form of tax is included in the tariff,
such as VAT or environmental taxes. The facility owner will normally request
reimbursement of any tax incurred via its processing of the gas on behalf of the gas
producer.

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