Parties in a gas sales agreement (GSA) agree a minimum quantity of gas to be purchased for each year, the Take or Pay amount. If the buyer takes less than this amount, he will pay for the balance not taken. To arrive at the ToP amount: x% of the ACQ less underdeliveries by the seller; less quantities of gas that the buyer was unable to accept for reasons of FM, less accumulated carry-forward gas.

Take-or-pay contracts are a vestige of the early days of the gas industry when liquid spot markets didn’t exist and producers needed long-term deals with stable prices to underpin vast investments in new gas fields. The system has endured even as some markets, such as the U.K., have moved to spot gas market pricing. Some industry experts are now calling for a radical rethinking of the way gas contracts are priced, saying they should be linked to spot market prices for gas rather than oil products. Indeed, the oil-linked price and minimum-purchase commitments in long-term gas contracts may become increasingly unmanageable as buyers are forced to take volumes at much higher prices than their competitors.