Global Ports Logistics and Trade Realising Reserves and Realising Capital

Welcome to the fifth article in the Ashurst Global Ports, Logistics and Trade series from the Ashurst Global Ports, Logistics and Trade team.

The first four articles have been combined into an Ashurst Global Ports, Logistics and Trade Compendium in chapter format. The subject matter of the articles is wide ranging. While each article is standalone, a number of narrative threads run through the articles, hence the compilation into chapter format.

This article deals with infrastructure use to Realise Reserves and Realise Capital, and in this context key port interfaces. This article is as much about progress towards Net Zero GHG emissions (NZE), as it is about anything else: the progress to NZE is providing impetus for Realisation of Reserves and Capital.

In this article, members of the Ashurst Global Ports, Logistics and Trade team provide commentary and insights in respect of the use of tolling services agreements (TSAs) and terminal use agreements (TUAs), (generally and specifically), and international oil companies (IOCs or, increasingly international energy companies or (IECs) and national oil companies (NOCs) to Realise Reserves and Realise Capital and the key interfaces at the sea ports at which loading and unloading activities take place¹.

Also, this article places "front-and-centre" a trend across the oil and gas industry of selling down interests in existing infrastructure, and in some cases both existing and under-development infrastructure, and outlines the circumstances in which an infrastructure services agreement (ISA) or infrastructure use agreement (IUA) may be used.

Overview of this article:

This article is divided into five sections:

• Section 1 – Background: providing background on current dynamics informing why IOCs and NOCs are Realising Reserves and Realising Capital, and how TSAs and TUAs may play a role in Realising Reserves (and in so doing maximising use, both current and whole-of-life) and Realising Capital², and how ISAs / IUAs have a role in Realising Capital³;
• Section 2 – Use of TSAs and TUAs, ISAs and IUAs: providing background on: 
  • the circumstances in which TSAs and TUAs are used and the structures that may be used (and an explanation as to when TSAs and TUAs are not required, and why),
  • the structures and contractual arrangements that existing upstream and downstream assets and infrastructure owners and operators use to provide tolling services and terminal use services, and
  • infrastructure use and throughput services in the context of ISAs and IUAs;

• Section 3 – Loading and Unloading Ports: TSAs and TUAs: providing detail about the interface between facilities and infrastructure used to provide tolling services (under the applicable TSA) and terminal services (under the applicable TUA) in the context of the loading port (in respect of the applicable TSA) and the unloading and reloading (in respect of the applicable TUA)⁴. Whereas port interfaces are relevant in the context of both TSAs and TUAs, port interfaces are less likely to be relevant in the context of ISAs / IUAs, and as such for the purposes of this article, possible interfaces in this context are not covered;
• Section 4 – Key Risk allocation under TSAs and TUAs, ISAs and IUAs: providing background to the key risks that arise under any TSA or TUA or ISAs / IUAs: note that different circumstances, including different shippers (i.e., customer or users) and whether or not the facilities and infrastructure are being equity or debt financed, can inform different risk allocation⁵; and
• Section 5 – Conclusion: providing the perspective of the co-authors in respect of the likely continuation of Realising Reserves and Realising Capital, in particular in the context of progress towards NZE.

Download the full article below. 

Authors: Michael Harrison, Senior Partner, Energy, Resources and Infrastructure, Asia Pacific; Richard Guit, Global Co-Head, International Projects Group; Stuart James, Partner, Abu Dhabi; Daniel Reinbott, Partner, Singapore; Peter Vaughan, Partner, Perth; Matthew Wood, Partner, London

^{1.  In this regard, the subject matter of this article ties back to that of Chapters 2, 3 and 4 in the Ashurst Global Ports, Logistics World Trade series contained in the Ashurst Global Ports, Logistics and Trade Compendium.}

^{2.  In this context, a broader perspective is taken in respect of the structural and contractual arrangements that underpin Realising Capital on the sale of the entire or part of the interest in an asset that is going to continue to be used by seller to enable continued transport or processing of hydrocarbons: for example, if a pipeline is sold for the purposes of Realising Capital unless the investor in the pipeline is prepared to take demand risk, the shippers of hydrocarbons (i.e., the customer for, and user of infrastructure services) through the pipeline will do so on the basis that an availability charge / capacity charge will be payable.}

^{3.   Three of the co-authors of this article, Peter Vaughan, Dan Reinbott, and Michael Harrison co-authored a publication in August, 2020 that provided their perspective on the natural gas and LNG industry (The Future of LNG and Natural Gas Infrastructure – An Asia-Pacific Perspective). As will be seen, their perspective has not changed, and the development since the publication of that article are entirely consistent with it.}

^{4.  And in this context, which party to the TSA or, as the case may be, the TUA is responsible for procuring services from the port and port service providers, including pilotage and towage, and procuring access to the facilities loading LNG from storage to LNG carrier consistent with the TSA and facilities unloading LNG from LNG carrier into storage consistent with the TUA}

^{5.  For example, a shipper provided with tolling services from an existing liquefaction facility that is making use of ullage as a result of existing production coming off plateau that has been equity financed, or debt finance has been repaid, is likely to have to accept a different risk allocation than a shipper that is agreeing to pay an availability charge/ capacity charge to allow the development of an additional train that will be used to process and to liquefy natural gas from a new source and from which existing shippers of natural gas will obtain a benefit.}