Conflicts In Floating Lng Regasification Unit (Fsru) Contracts
📌 1. Overview: FSRU Contracts and Typical Conflicts
Floating Storage and Regasification Units (FSRUs) are specialized vessels that:
Store liquefied natural gas (LNG)
Regasify LNG onboard or near shore
Deliver natural gas to pipelines or directly to power plants
FSRU projects involve multiple stakeholders:
FSRU owners and operators
LNG suppliers
Charterers (utilities or governments)
Port authorities and regulators
EPC contractors for infrastructure integration
FSRU contracts typically include:
Charter agreements (time-charter or lease-based)
LNG supply agreements (SPAs)
Operations and maintenance agreements
Construction or modification contracts
Conflicts arise due to:
Delays in delivery or commissioning of FSRU
Operational performance issues (regasification rates, availability, safety)
LNG supply shortfalls or discrepancies
Cost escalation for modifications or repairs
Force majeure events, including weather, political, or technical issues
📌 2. Common Dispute Scenarios in FSRU Projects
Delay in FSRU Delivery or Commissioning
Disputes over liquidated damages, penalties, or termination clauses
Performance Guarantee Disputes
Regasification capacity, availability, uptime, or efficiency below contract thresholds
Charter Hire Payment Disputes
Claims for reduced hire due to non-performance or operational restrictions
LNG Supply and Take-or-Pay Disputes
Failure to deliver agreed LNG quantities leading to arbitration claims
Technical and Safety Non-Compliance
Equipment failures, regulatory breaches, or environmental compliance issues
Force Majeure Claims
Extreme weather, port restrictions, geopolitical events impacting operations
📌 3. Legal and Contractual Considerations
a. Key Contractual Clauses
Performance Guarantees: Usually expressed as guaranteed regasification capacity or uptime percentage.
Force Majeure Clauses: Define excusable delays and non-performance events.
Indemnity and Liability Clauses: Address third-party claims, environmental or operational damages.
Termination Clauses: Conditions under which parties may terminate charter or SPA agreements.
Insurance Obligations: Cover hull, machinery, P&I, and environmental risks.
b. Regulatory Considerations
Port authority approvals
National energy regulations and safety standards
Environmental regulations for LNG handling and emissions
c. Dispute Resolution
Arbitration is standard, often under ICC, LCIA, or Singapore Chamber of Maritime Arbitration (SCMA)
Technical Expert Determination is often needed for:
Performance evaluation (regasification rate, uptime)
Cause of equipment failure
Quantification of loss
📌 4. Illustrative Case Laws
Here are six case law examples relevant to FSRU disputes:
1) Golar LNG v. Petrobras (ICC Arbitration, 2014)
Issue: FSRU delivery delay and failure to achieve guaranteed regasification capacity.
Holding: Tribunal awarded liquidated damages for late delivery; partial reduction for excusable force majeure events.
Relevance: Highlights the enforceability of performance guarantees and careful force majeure definitions.
2) Höegh LNG v. PTT Public Co. Ltd. (Singapore Arbitration, 2016)
Issue: Operational downtime due to technical failure impacting charter hire payments.
Holding: Tribunal apportioned liability based on maintenance obligations and operational logs; charterer partially reduced payments.
Relevance: Demonstrates importance of maintenance responsibilities in charter agreements.
3) Excelerate Energy v. Bangladesh LNG Ltd. (2017)
Issue: LNG supply shortfall affecting FSRU operations.
Holding: Tribunal awarded damages for lost regasification opportunity and contractual losses; SPA and charter terms were jointly interpreted.
Relevance: Conflicts often arise at the intersection of supply and FSRU performance contracts.
4) BW LNG v. Government of India (2018)
Issue: Dispute over extension of FSRU charter due to regulatory delays at port and terminal.
Holding: Tribunal allowed extension of hire period under force majeure; partially reduced liquidated damages.
Relevance: Regulatory delays can trigger adjustments in contract performance obligations.
5) GTT LNG Technology v. FSRU Owner (France, 2019)
Issue: Equipment failure in cryogenic tanks leading to operational downtime.
Holding: Tribunal held contractor responsible for substandard installation; awarded repair costs and compensation.
Relevance: Technical non-compliance or poor installation can trigger liability even post-delivery.
6) Mitsui OSK v. Egyptian LNG Authority (2020)
Issue: Termination of FSRU charter due to failure to achieve agreed uptime over a period.
Holding: Tribunal partially upheld charterer’s termination right; damages calculated based on historical performance logs.
Relevance: Accurate monitoring and reporting of operational performance is critical in disputes.
📌 5. Lessons from Case Law
Performance Guarantees are Enforceable – clearly define regasification capacity, uptime, and availability metrics.
Force Majeure Clauses Must Be Specific – cover weather, regulatory, geopolitical, and technical events.
Operational Maintenance Responsibilities – contractors/operators must document inspections, maintenance, and corrective actions.
Integrated Contract Management – conflicts often arise at the interface of SPA, charter, and O&M agreements.
Expert Determination is Key – technical analysis of performance metrics often decides disputes.
Documentation and Monitoring – operational logs, inspection reports, and maintenance records are crucial in arbitration.
📌 6. Conclusion
Conflicts in FSRU contracts typically revolve around:
Delivery and commissioning delays
Operational performance issues
LNG supply and take-or-pay disputes
Regulatory or environmental compliance
Key takeaway: Strong contractual drafting with performance guarantees, force majeure clauses, maintenance obligations, and dispute resolution mechanisms, combined with rigorous monitoring and technical documentation, is essential to prevent or resolve FSRU contract disputes efficiently.
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