Quantitative Terms in Gas Sale Agreements (GSA/GSPA)

Gas Sale Agreements (GSAs) are among the clearest contractual arrangements in which the concept of quid pro quo is manifested in its true sense.
Naturally, every sale-and-purchase agreement involves two parties — the buyer and the seller — and quid pro quo means that for every clause securing the buyer’s interests, there is a corresponding clause safeguarding the seller’s interests.

Below, several key volume-related contractual mechanisms commonly used in gas agreements are briefly discussed:

🔹 AACQ (Adjusted Annual Contractual Quantity)

The volume of gas that the seller is obligated to deliver on an annual basis—referred to as the Annual Contractual Quantity (ACQ)—is typically specified in the GSA.
Because the seller faces a risk of non-performance in meeting the ACQ, the parameter AACQ is defined as an adjustment to ACQ to help mitigate this delivery risk.

🔻 If the seller fails to meet its annual delivery obligation, this results in a delivery shortfall.

🔸 Nomination

In addition to ACQ, which reflects the seller’s annual delivery obligation, another parameter is defined: the Daily Contractual Quantity (DCQ), which represents the buyer’s daily offtake obligation.
Importantly, DCQ is not directly derived from ACQ—that is, DCQ × 365 does not necessarily equal ACQ.
Instead, DCQ is expressed as a range (min DCQ to max DCQ), allowing the buyer—based on system conditions—to nominate its daily offtake within this band. In this way, the nomination clause functions similarly to AACQ in mitigating the buyer’s risk of non-performance.

🔻 If the buyer takes more than the nominated volume, this constitutes an overtake; if the buyer takes less, it constitutes an undertake.

🔸🔹 TOP (Take-or-Pay)

This clause provides flexibility for the buyer in meeting its contractual obligations.
For instance, if the TOP level is 90%, the buyer is required to take at least 90% of ACQ. If the buyer offtakes only 80%, it is still obliged to pay for 90%, but it pays nothing for the remaining 10% under-delivered volume.
Although TOP provides operational flexibility for the buyer, it also embeds protection for the seller.

🔸 Make-up Gas

Complementing the TOP clause, the contract typically allows the buyer to receive, in future periods, the volumes for which it has paid but not taken, commonly referred to as Make-up Gas, often with a discount mechanism in favor of the buyer.

🔸🔹 Carry Forward

This clause allows the buyer to pre-take a portion of the following year’s ACQ and pay for it in advance.
In return, a credit balance—often referred to as a “Gas Pre-take Bank”—is created for the buyer, reducing its ACQ obligation for the next contract year.

In this note, clauses primarily favoring the seller have been marked with 🔹, those favoring the buyer with 🔸, and clauses reflecting reciprocal obligations with 🔸🔹.

🔻 Quantitative terms are not limited to the above. Depending on negotiations, numerous other quantitative mechanisms may be incorporated into the GSA. Readers interested in further study are invited to consult the references below.

References

1. Peter Roberts, Oil and Gas Contracts: Principles and Practice, 2nd ed., 2019, Ch. 11.
2. Ghasemi, Gholamhossein et al., “The Use of Non-Contractual Measures and Volume-Related Clauses to Enhance Stability in Long-Term Natural Gas Sales Agreements,” Energy Economics Studies Quarterly, Summer 2022.