Question 3.1.49
What constitutes "delivery" for the purposes of REMIT? We are particularly interested in what constitutes the delivery in the context of LNG supplies.
According to ACER's Q&A (III.3.36), "ACER considers any importation or offloading of LNG in any LNG facility (including flanges that connect the LNG vessel to the LNG terminal) in the EU as delivery in the Union as far as the delivery of the product takes place in the European Union". This suggests that "delivery" means the physical delivery of the product.
However, in FAQ #3.1.21, ACER states that "in the Agency's view contracts for the supply of LNG before the entry flange of an EU LNG regasification terminal, for example an exchange of title on the high seas outside the EU, are not subject to transaction reporting". This suggests that title transfer constitutes delivery of the product.
We note that Incoterms definitions, which are commonly used in the LNG sector, of delivery relate to the physical delivery / transfer of risk and are silent on transfer of title, separating the concept of delivery into two. For example,
In a DES transaction "delivery" occurs at the time when the goods are placed at the disposal of the buyer on board the vessel at the named port of destination in such a way as to enable them to be removed from the vessel by the buyer. At the point of delivery, the risks transfer from the seller to the buyer. In a DES scenario, delivery is tied to the physical delivery / transfer of risk, and not to the transfer of title; and
In an FOB transaction, "delivery" occurs at the time when the goods are on board the vessel at the named port of shipment (i.e. the location where the LNG is passed over the ship's rail). At the point of delivery, the risks transfer from the seller to the buyer. Again, in an FOB scenario, delivery is tied to the physical delivery / transfer of risk, and not to the transfer of title.
Does REMIT distinguish between the physical delivery of LNG into the EU and the transfer of title to the LNG?
Example 1:
A contract for the supply of LNG has the following characteristics:
transfer of title between the buyer and the seller happens in international waters; and after the title is transferred to the buyer, the seller delivers on a DES basis to the flange of an EU regasification terminal.
Is this contract subject to REMIT? Does the seller have to register as a market participant / report this transaction?
Example 2:
A contract for the supply of LNG has the following characteristics:
the seller delivers the goods on an FOB basis; the named port of shipment is outside of the EU; and transfer of title to the goods happens in the EU.
Is this contract subject to REMIT? Does the seller have to register as a market participant / report this transaction?
Answer
In the Agency’s view, REMIT does not distinguish between the physical delivery of LNG into the EU and the transfer of title to the LNG. We believe that market participants know where the delivery takes place and they should be able to derive their own conclusions.
In addition, whenever market participants (MP) may have any doubts about the delivery point, we would recommend (MP A) to report the transaction in any case, even if the other counterparty (MP B) would not agree with (MP A). In this case (MP A) would not take the risk of not reporting a reportable contract according to REMIT. The EIC for the destination delivery point can be reported in this case.
We also recommend market participants to read Questions 3.1.21, 3.1.22, 3.1.23 and 3.1.24 of the FAQs on transaction reporting document which, in the Agency’s view, would help to understand the scope of LNG contracts under REMIT.