If you`re in the oil and gas industry, you`ve likely heard of an upstream gas sales agreement. But what is it, exactly?
An upstream gas sales agreement is a contract between a producer of natural gas (the upstream party) and a buyer (the downstream party) who purchases the gas for processing or distribution. The agreement outlines the terms of the sale, including quantity, price, and delivery schedule.
In many cases, the downstream party is a natural gas distributor or supplier who purchases the gas to sell to end-users, such as homes and businesses. Because natural gas is a commodity, the price is subject to market fluctuations, so the agreement may include pricing provisions to address changes in market conditions.
One key consideration in an upstream gas sales agreement is the delivery point. The agreement will specify where and how the gas will be delivered, such as at a pipeline connection or a processing facility. The agreement may also include provisions for the transportation of the gas from the wellhead to the delivery point.
Another important factor is the quality of the gas being sold. The agreement will typically include specifications for the quality of the gas, such as its heating value, impurities, and moisture content. The upstream party is responsible for ensuring that the gas meets these specifications before it is delivered to the downstream party.
The upstream gas sales agreement is a critical component in the natural gas supply chain. It allows producers to monetize their gas reserves by selling it to downstream parties who can process and distribute it to end-users. The agreement provides certainty to both parties by establishing the terms of the sale upfront, which can help mitigate risks associated with market fluctuations.
In summary, an upstream gas sales agreement is a contractual arrangement between a natural gas producer and a buyer who purchases the gas for processing or distribution. The agreement outlines the terms of the sale, including quantity, price, and delivery schedule, and helps provide certainty to both parties in the natural gas supply chain.