European Commission Takes Aim At Qatar's LNG Contracts

JFTC's recent market study on clauses in LNG SPAs indicate that agreements may run afoul of Japanese antimonopoly laws. EU cases may provide guidance on application of competition law to destination clauses, diversion clauses, profit-sharing clauses and take-or-pay clauses. The EC, having just concluded its seven-year investigation into Gazprom, has opened an investigation into "destination clauses" in Qatar Petroleum's LNG supply agreements with EEA importers. Previous EC investigations into destination clauses in LNG and pipeline gas agreements suggest that commitments from Qatar Petroleum are a more likely outcome than a fine. The investigation is likely to conclude sometime in the next three years, unless the Qatar government decides to become more involved in the investigation. Summary

The European Commission's (EC) current investigation into Qatar Petroleum is likely to have a major impact on Qatar Petroleum's LNG supply agreements with EEA importers. Based on previous EC investigations into LNG contracts and neighbouring gas markets, Qatar Petroleum appears likely to settle the investigation with the EC in exchange for a commitment (or a "common understanding" with the Qatar government, depending on the extent of its involvement) to remove any territorial restriction clauses from Qatar Petroleum's LNG contracts with EEA importers. Qatar Petroleum is unlikely to receive a fine from the EC (which technically could be up to 10 percent of its worldwide turnover), unless it is later found to have breached its settlement agreement with the EC. We do not expect an imminent outcome in this investigation, with a likely time frame being circa 18 months on the short end, extending to circa three years at the long end. However, the time frame could become very unpredictable if the Qatar government decides to become more involved in the investigation.

The EC Investigation into Restrictions to the Free Flow of Gas Sold by Qatar Petroleum in Europe

The EC has launched an investigation into whether supply agreements between Qatar Petroleum companies exporting LNG and European importers have hindered the free flow of gas within the EEA through so-called "destination clauses." According to reports, the EC is looking into at least three types of destination clauses: (i) clauses that stop cargoes from being diverted to another terminal, (ii) clauses that restrict the list of countries that they can sell the LNG on to and (iii) clauses that limit the volumes of LNG that can be...

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