A total of 48 separate contracts were negotiated between the parties, though Mr McCarthy says they were almost identical and in practice, they functioned as one.
He says that initially, buyers were mistrustful of negotiating with sellers from a joint venture. For contracts on previous projects, buyers would deal with a company set up to sell the LNG. The Malaysia LNG Project set up a separate company to market the LNG, so the buyers dealt only with one seller.
The original NWS LNG contracts has a price clause which looks forward to negotiation when deliveries would start, and eventually the sellers developed a series of rolling five-year price contracts.
The details of the price contracts, Mr McCarthy said, were too confidential to talk about with us.
“Mostly, when commercial things like price were under negotiation, the number of people in the room diminished dramatically.
“They said to the lawyers, ‘You can go and have a holiday.’ So we did! A lawyer from BP and I went down to Kamakura for the day.”
The first big point of negotiation, Mr McCarthy says, was the shipping arrangements. The MoI had left open who would do the shipping, and the sellers recognised that there was a Japanese interest in shipping.
Mr McCarthy says the main concern when negotiating the shipping of LNG is timing.
“In the past, iron ore had been sold on a free-on-board basis. Buyers send their ships to the port to load the product. If they don’t want the iron ore, they don’t send the ships.
“That would be intolerable in an LNG project, where everything works to extremely fine tolerances. So we
wanted to be able to control the shipping,” he says.
“Our original preference was for CIF shipping – cost, insurance and freight.”
Under CIF, the seller loads the product onto a ship, and the ship owner issues the seller with a bill of lading, which acknowledges that goods have been received on board as cargo. The ship owner acts as custodian of the product on the voyage, and the transfer of the bill of lading then transfers ownership of the cargo from seller to buyer at some point during or after the voyage.