Disputes In The Field Of LNG Shipping Will Increase Dramatically

- Feb 28, 2020-

With the development and differentiation of the industry, the legal disputes in LNG transportation industry will increase dramatically.            Historically, the natural gas market has been relatively stable. A few energy giants, traders, producers and other participants have maintained relatively stable and good cooperative relations through long-term supply contracts.            The close relationship between these industry giants means that they usually have no intention of getting involved in the legal disputes that both sides are working hard, sometimes even if some problems arise, they will usually be solved amicably through negotiation.            However, the drowsy days of law and lawyers of other major companies may be gone. Because they will have to start preparing to start "fighting" one after another.            In fact, Andrew Williams, a partner in HFW's commodities division, recently said: "we have seen more disputes than before."            More short contracts = more disputes            Long term contracts involving large amounts of capital mean that negotiations often take quite a long time and are project-based, in sharp contrast to short-term transactions, which are now negotiating much faster.            In addition, mature veterans who often sign long-term agreements often know what they are doing, so there are fewer disputes and disputes between the two sides.            But since 2010, the US shale gas, which suddenly broke into the market, has become the real game changer of LNG market.            Then the United States quickly changed from a natural gas import country to an export country, and the terminal also quickly transformed into an export port. In the next few years, the United States is expected to replace Qatar as the world's largest natural gas exporter.            Moreover, the image of LNG as a "cleaner" fuel is growing, and the market (especially in Asia) is growing rapidly.            In this case, there are more and more suppliers and players in the market, and there are more and more short-term transactions.            "With more market participants, more short-term deals and more ships on the sea, there will inevitably be more disputes," Williams said            Considering that LNG trading is becoming more and more active at present, the delay caused by weather, equipment failure or transportation problems will inevitably lead to more disputes, especially when the goods are in the same cascade contract chain.            Although most of LNG ships are newer, higher standard and more advanced compared with the general retransmission, there are still inevitable problems.            Technical problems and equipment failure are inevitable at the same time. New problems may also arise from the new IMO 2020 regulations on fuel oil filling and redelivery of long-term time charter ships (mainly affecting Q Max and Q flex ships because they do not use LNG as fuel).            In addition, there is a very special bottom cargo "heel" problem in LNG transportation business, that is to say, during each unloading process, the LNG ship needs to keep some "inventory" for the cooling of the cargo tank before the next loading.            Too much bottom cargo retention will limit the amount of cargo that can be loaded and may lead to short cargo problems.            In addition, the price problem may also bring more disputes.            "The price drop was mainly due to oversupply. When such a situation occurs, some parties want to withdraw from the contract and make up excuses to evade the responsibility of performing the contract, such as force majeure. "            HFW believes that a well drafted contract is crucial, but the contract does not necessarily cover all possible situations, especially in the LNG industry, where sea transportation accounts for such a large proportion.            An executive of LNG shipping company also said that there will be more cases. As for force majeure, he said that it must now focus more on demurrage claims.