Gas and LNG Offtake in the UAE: Contract Structure, Pricing, and Disputes

Abu Dhabi owns all gas and ADNOC controls access to it

The starting point for any gas supply or offtake agreement in the UAE is that the buyer does not negotiate with a competitive market of suppliers. Under Abu Dhabi Law No. 4 of 1976 on Gas Ownership, all natural gas discovered or to be discovered within Abu Dhabi's territorial zone is the sole property of the emirate. ADNOC has the exclusive right to exploit and use that gas, either independently or through joint ventures in which ADNOC holds a minimum 51% interest.

• All gas produced from oil and gas wells in Abu Dhabi must be delivered to ADNOC (in practice, to ADNOC Gas Processing), unless it is used by the operator for its own petroleum operations such as enhanced oil recovery or power generation.
• ADNOC Gas PLC, a publicly listed subsidiary, handles the processing, marketing, and sale of natural gas to domestic and international buyers.
• The UAE's gas strategy targets self-sufficiency by 2030, with major new supply coming from the Ghasha sour gas concession (targeting 1.8 billion standard cubic feet per day) and the Ruwais LNG project (9.6 million metric tonnes per annum of LNG capacity).
• For international LNG offtake, ADNOC has signed long-term sale and purchase agreements (SPAs) of 10 to 20 years with counterparties including Shell, Mitsui, ENN, EnBW, SEFE, and Hindustan Petroleum Corporation.

Who this applies to

Domestic gas supply agreements are relevant to industrial buyers in the UAE (steel manufacturers, aluminium smelters, petrochemical operators, power generators, desalination plants), free zone operators and data centre developers with significant energy requirements, and companies establishing operations in ADNOC's TA'ZIZ industrial zone. International LNG offtake agreements are relevant to energy trading companies, utilities, and national oil companies purchasing volumes from ADNOC's LNG facilities.

For an overview of the authorities and legislation governing the sector, see our article on the UAE oil and gas regulatory framework. For legal support from energy lawyers in the UAE, including gas supply contract negotiation and enforcement, our team advises buyers, sellers, and project companies across the value chain.

Contractors and service providers involved in gas infrastructure projects (pipelines, processing plants, LNG facilities) face a related but distinct set of risks under their EPC and service contracts, which are addressed in our article on UAE energy EPC contracts.

How domestic gas supply agreements are structured

Domestic gas supply in the UAE is not a free market transaction. ADNOC Gas operates as the principal supplier and sets the terms. Domestic gas supply agreements typically include the following core provisions:

Volume and delivery. The agreement specifies the contracted annual quantity (ACQ), the maximum daily quantity (MDQ), and the delivery point (typically a connection to the ADNOC Gas pipeline network, which spans approximately 1,600 km across Abu Dhabi). The buyer commits to receiving stated volumes, and ADNOC commits to making those volumes available, subject to force majeure and operational constraints.

Take-or-pay obligations. Most domestic gas supply agreements include a take-or-pay clause requiring the buyer to pay for a minimum percentage of the contracted quantity (typically 80% to 90% of the ACQ) whether or not the buyer actually takes delivery. This clause protects the seller's revenue certainty and underpins the project economics of upstream and midstream gas developments. For the buyer, the take-or-pay obligation is the single largest financial exposure in the contract and must be modelled carefully against projected demand.

Pricing. Domestic gas prices in the UAE are not determined by international spot markets. Pricing is typically set by reference to a government-administered tariff or formula, which may be linked to oil prices, a fixed base price with periodic adjustments, or a combination. Price review mechanisms in domestic contracts tend to be less flexible than those in international LNG SPAs, reflecting ADNOC's dominant position and the government's interest in stable energy costs for industrial development.

Term. Domestic gas supply agreements are long-term, commonly 15 to 27 years. ADNOC Gas's 20-year agreement with Emsteel (effective January 2027, valued at USD 3.5 to 4.2 billion) is representative of the scale and duration of these commitments. The length of the term is driven by the buyer's need for supply security and the seller's need for revenue certainty to justify infrastructure investment.

How international LNG offtake agreements are structured

ADNOC's international LNG offtake programme, primarily for the Ruwais LNG project and the existing Das Island facility, follows the global LNG SPA model more closely, though the specifics reflect ADNOC's commercial position and the UAE's regulatory framework.

Heads of agreement and definitive SPA. ADNOC typically signs a heads of agreement (HOA) first, which sets out the key commercial terms (volume, duration, pricing formula, delivery basis), followed by negotiation of a definitive SPA. Several of the Ruwais LNG offtake agreements were announced initially as HOAs and subsequently converted to binding SPAs.

Volume. Offtake volumes for Ruwais LNG range from 0.4 to 1.2 million metric tonnes per annum (mtpa) per counterparty, with contract durations of 10 to 20 years. More than 8 mtpa of the project's 9.6 mtpa capacity has been secured through long-term deals within 16 months of the project's final investment decision in July 2024.

Pricing. International LNG SPAs are typically priced by reference to a formula linked to an oil price index (commonly Brent crude), a gas hub index (such as TTF or JKM), or a hybrid of both. The pricing mechanism and the slope (the ratio of LNG price to oil price) are among the most heavily negotiated terms. Price review clauses allow either party to request a renegotiation of the price formula after a specified period (commonly every 3 to 5 years), usually triggered by a material change in market conditions.

Destination flexibility. International LNG contracts have historically included destination restrictions limiting where the buyer can resell cargoes. ADNOC's recent SPAs appear to offer a degree of destination flexibility, consistent with the global trend away from rigid restrictions. The degree of flexibility affects the buyer's ability to optimise its portfolio and the pricing terms available.

Take-or-pay disputes are the highest-value risk

The take-or-pay clause is the most litigated and arbitrated provision in gas supply agreements globally, and the UAE is no exception. The clause creates an unconditional payment obligation: the buyer must pay for the minimum contracted quantity even if it cannot take delivery due to reduced demand, operational shutdowns, or market changes.

The buyer's exposure is straightforward to calculate but difficult to manage. If a buyer contracts for 500 million standard cubic feet per day at a fixed tariff and its operations require only 300 million, the take-or-pay shortfall payment can be substantial. Over a 20-year contract, a sustained demand shortfall can generate liabilities in the hundreds of millions of dollars. Buyers must assess whether their projected demand justifies the committed volume, and whether the contract includes make-up provisions (allowing the buyer to take excess volumes in future years to recover the shortfall payment) or carry-forward rights.

From the seller's perspective, the take-or-pay clause is essential to the economics of gas production and infrastructure investment. ADNOC Gas's pipeline infrastructure, gas processing capacity, and LNG trains require long-term revenue certainty. A buyer that signs a take-or-pay commitment and subsequently seeks to reduce volumes or renegotiate pricing is challenging the financial foundation of the supply arrangement.

Disputes typically arise when the buyer's demand falls below the take-or-pay threshold and the buyer seeks to invoke force majeure, hardship, or changed circumstances to avoid or reduce the payment obligation. Under UAE law, force majeure requires an event that is unforeseeable, unavoidable, and external; a fall in market demand or a reduction in the buyer's own production does not ordinarily qualify. Under English law (which governs many international LNG SPAs), the position is similar: commercial impossibility due to adverse economic conditions is generally not accepted as force majeure.

Price review disputes

Price review clauses are a standard feature of long-term gas supply contracts. They allow either party to request an adjustment to the pricing formula if market conditions have materially changed since the contract was signed or since the last review.

The difficulty lies in what constitutes a "material change" and what remedy the price review mechanism provides. If the parties cannot agree on a revised price during the negotiation period (typically 60 to 180 days), the contract usually provides for arbitration or expert determination. The scope of the arbitrator's or expert's authority to adjust the price formula is itself a heavily negotiated term: some contracts limit the arbitrator to adjusting specific parameters within the existing formula; others permit a complete restructuring of the pricing mechanism.

In the UAE domestic gas market, price review disputes are less common because pricing is substantially government-influenced. In international LNG SPAs, price reviews have generated some of the largest and most complex arbitrations in the energy sector. ADNOC's growing portfolio of long-term LNG SPAs means that price review disputes are an increasingly relevant risk for both ADNOC and its international counterparties.

For companies that structure gas supply obligations within a joint venture framework, the governance and cost-sharing mechanisms addressed in our article on joint venture agreements in the UAE are directly relevant.

Force majeure and supply interruption

Gas supply agreements must allocate the risk of supply interruption. In the UAE, this includes the risk of upstream production issues (reservoir performance, facility shutdowns, flaring restrictions), pipeline constraints or maintenance, government-ordered production curtailments (including OPEC+ compliance), and force majeure events affecting processing or liquefaction facilities.

The definition of force majeure in a UAE gas supply agreement determines whether the seller can suspend deliveries without liability, and whether the buyer can suspend take-or-pay payments. Contracts governed by Abu Dhabi law must be read alongside Article 273 of the UAE Civil Code (Federal Law No. 5 of 1985), which provides that if a supervening event makes performance impossible (not merely more expensive), the obligation is extinguished. The threshold is high: difficulty or increased cost does not qualify.

In international LNG SPAs governed by English law, force majeure is a purely contractual concept and must be expressly defined in the agreement. Most LNG SPAs include a detailed list of qualifying events (natural disasters, wars, government actions, facility failures) and expressly exclude economic hardship, market changes, and inability to sell at a profitable price.

Governing law and dispute resolution

ADNOC and Abu Dhabi government entities typically require that domestic gas supply agreements are governed by Abu Dhabi law, with disputes subject to arbitration seated in Abu Dhabi. This reflects the broader pattern across Abu Dhabi's petroleum sector, where the government requires performance-related agreements to be governed by local law.

International LNG SPAs may be governed by English law, which offers a well-developed body of precedent on gas supply contract interpretation, force majeure, and damages calculation. The arbitration seat for international LNG disputes is typically London, Singapore, or Paris, depending on the counterparty's preference.

UAE courts have consistently held that arbitration agreements must clearly and explicitly provide for arbitration as the sole forum for dispute resolution. A unilateral arbitration clause (giving one party the option to choose between arbitration and court proceedings) was recently confirmed by the Dubai Court of Cassation (Case No. 735/2024, Commercial) as invalid under UAE law. Companies entering into gas supply agreements should ensure that the dispute resolution clause is bilateral, specific, and enforceable in the intended jurisdiction.

For companies facing arbitration under any UAE-seated agreement, our article on choosing the right UAE arbitration clause provides a comparison of the main institutional options.

Regulatory constraints that shape contract terms

Several regulatory factors constrain what can be negotiated in a UAE gas supply agreement, particularly for domestic buyers:

Gas ownership. Under Abu Dhabi Law No. 4 of 1976, title to gas remains with the emirate at all stages. The buyer under a domestic gas supply agreement acquires the right to receive and use gas at the delivery point, but does not acquire ownership of the gas in the ground or in the pipeline upstream of the delivery point. This affects how the contract allocates risk for supply failure and how the buyer's rights are characterised for financing purposes.

ADNOC's dual role. ADNOC operates simultaneously as the commercial counterparty (through ADNOC Gas) and as the de facto regulator of Abu Dhabi's oil and gas sector. This dual role means that the buyer's contractual counterparty also controls upstream production allocation, pipeline access, and gas processing capacity. Disputes between a domestic buyer and ADNOC Gas are therefore not disputes between equal commercial counterparties in the traditional sense.

ICV obligations. Domestic gas supply agreements increasingly include in-country value (ICV) requirements. For buyers that are themselves contractors or suppliers to ADNOC, the gas supply agreement may be linked to broader ICV commitments. Our article on ICV certification for UAE oil and gas contractors explains how the scoring formula works and where the compliance risks sit.

What companies should do next

For domestic industrial buyers, the negotiation of a gas supply agreement with ADNOC Gas is a structuring exercise as much as a commercial one. The take-or-pay obligation, the pricing mechanism, and the force majeure definition are the three clauses that will determine the buyer's financial exposure over the life of the contract. Buyers should model their demand projections conservatively, negotiate for make-up and carry-forward provisions, and ensure the force majeure clause covers operational scenarios specific to their industry.

For international buyers negotiating LNG offtake agreements, the key issues are the price formula and review mechanism, destination flexibility, the allocation of shipping and regasification risk, and the enforceability of the SPA in the buyer's home jurisdiction. The rapid commercialisation of the Ruwais LNG project (over 80% of capacity contracted within 16 months of FID) indicates that ADNOC is negotiating from a strong position, but the terms of each SPA remain individually negotiated.

This article is also relevant to businesses in construction, financial services, and maritime and logistics.

Legal advice may be required to assess how take-or-pay obligations interact with the buyer's project financing arrangements, how force majeure definitions align with the buyer's operational risk profile, and whether the dispute resolution clause will produce an enforceable outcome in the relevant jurisdictions.

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