Natural Gas Marketing Agreement

April 10th, 2021

Physical commercial contracts are negotiated between buyers and sellers. There are many types of physical commercial transactions, but most share certain standard specifications, including the buyer and seller`s indication, the price of the volume of natural gas sold (usually expressed in one volume per day), receipt and delivery point, duration of contract (usually expressed in number of days, from a given day) , and other conditions. The specific terms and conditions generally describe things such as payment dates, quality specifications for natural gas for sale and all other specifications agreed by both parties. 44 With regard to Proposition 1b, we find that the political instability measure coefficient (UNC) has no statistical significance. This type of uncertainty does not appear to be the relevant dimension of uncertainty for our analysis unit and does not affect the duration of the contract. Joint ventures of private oil and gas companies with domestic companies, as well as the high dependence of exporting countries on oil and natural gas supply revenues, can reduce the risk of opportunism on the part of upstream countries. The Price Uncertainty Variable (STDEVOIL) indicates the expected sign and is statistically significant for 2SLS models; As a result, the duration of the contract appears to be decreasing with the risk of being tied to an agreement that no longer reflects the actual price level that determines the profitability of the capital-intensive LNG value chain. 18 However, another perspective is the number of similar transactions made by the same parties. First, loyal partners can be rewarded and opportunistic behaviors punished in such long-term relationships. Second, transaction costs may decrease due to learning processes, established routines and reputational effects (cf.B. Milgrom and Roberts, 1992), all of which reduce the need for formal mechanisms for implementing bilateral agreements.

See Gulati and Nickerson (2008) for a more in-depth debate on the impact of inter-agency trust on governance choice and corporate performance. Therefore, a high frequency of transactions should lead to shorter contracts. Garvey (1995) develops a model that studies the impact of reputation on governance choices in environments where non-contractual investments take place. He finds that integration is preferred for one-shot games, while more hybrid structures, such as joint ventures, are preferred in repeated games.

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