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JFTC contests destination clauses in LNG contracts

June 28, 2017

JFTC contests destination clauses in LNG contracts

On June 28, 2017, Japan's Fair Trade Commission released the results of the Survey on LNG Trades it conducted with LNG industry participants.

The JFTC reviewed the necessity and the reasonableness of destination restrictions in FOB and DES contracts.

It concluded that FOB contracts which include destination clauses or restrictions on diversion prevent buyers from reselling LNG freely and properly and may well be in violation of the Antimonopoly Act.

In DES contracts, destination clauses are deemed necessary but the seller’s consent to diversion will be regarded as natural. Any restriction on diversion or competition-restraining requirement imposed by a seller may be in violation of the Antimonopoly Act and considered as an unfair trade practice.

Profit-sharing clauses, whereby buyers are obliged to share an unreasonable part of the resale profit with sellers or which prevent a user from reselling LNG, are also concerned. 

The Commission concluded that LNG buyers and sellers should carefully avoid these kind of clauses when negotiating new contracts as well as reviewing existing contracts. It added it would keep monitoring the LNG market and would take strict actions against any violations of the country's Antimonopoly Act.

Edited from JFTC report.