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UK Shale Gas Prospects – Preparing Bespoke Joint Operating Agreements and Gas Sales Agreements (Part II)

The first part of this article, published in the last issue of 2013, examined how a conventional joint operating agreement (JOA) will need to be modified to reflect the nuances of a UK onshore shale gas project. This second part of the article examines how a conventional gas sales agreement (GSA) will need to be modified to reflect the nuances of such a project, assuming that the parties to the shale gas project have by their development efforts liberated sufficient volumes of gas to constitute commercial quantities that are available for sale or supply. The ecological credentials and energy efficiencies of natural gas as a feedstock for power generation, in comparison with combusting coal or fuel oil, are well known. In the United Kingdom, the anticipated boom in shale gas production has been earmarked by several commentators as a feedstock for power generation, in preference to reliance on the vagaries of imported gas. The production characteristics of shale gas will require a different means of contracting for the supply of gas for power generation, however, in comparison with supplies from conventional gas sources. Because of a combination of delays in the new-build nuclear programme, the forced retirement of ‘dirty’ fossil-fuel-burning power plants and the lack of predictable reliability around power generated from renewable energy sources, the UK is increasingly looking towards natural gas (in any form) as a feedstock for power generation. As such, a decline in the rate of indigenous natural gas production from conventional offshore gas fields has led to increased reliance on gas imported from abroad in the form of LNG, and with that comes the exposure of the UK to the need to compete in global gas markets and so to the associated risks of uncertainty of gas supply. Consequently, the prospect of being able to rely on significant volumes of proximate and readily available domestic shale gas as a feedstock for power generation has an obvious appeal.