Briefing Note considers a number of common issues which can arise in relation to LNG contracts in the European Union (EU); these include: joint marketing arrangements; information exchanges generally; profit sharing mechanisms (PSMs); and territorial/destination restrictions

Joint Marketing

As a matter of EU competition law, cooperation between competitors or potential competitors can fall to be considered under the EU Merger Regulation (EUMR), or under Article 101 of the Treaty on the Functioning of the EU (Article 101).

Merger control

Joint marketing arrangements will not normally be regarded as a “concentration” for the purposes of EU law.

Only so-called “full-function joint ventures” qualify as concentrations under the EUMR, i.e. joint ventures (“JVs”) which perform on a lasting basis all the functions of an autonomous economic entity.

Normally a joint marketing arrangement will not qualify as a full-function JV because: 

  • it only takes over one specific function of the parent companies 
  • there is a strong presence of the parents on the upstream market 
  • it is dependent on purchases/supplies from the parents

Article 101

As such, joint marketing arrangements are considered under Article 101. Article 101(1) prohibits restrictive agreements which distort competition and have an effect on trade in the EU (the prohibition).

Joint marketing between competitors or potential competitors will always in practice be treated with scepticism by the EU Commission, especially where either, or both, of the parties have significant market shares in the EU, or part of the EU.

There are some circumstances where agreements which fall within Article 101(1) can be exempted from the prohibition. In principle, it is unlikely that the exemption would apply to arrangements where either or both of the parties have a significant market share/presence on the market.

In the past, parties could apply to the EU Commission for an exemption. This is no longer possible, and the parties must now “self-assess” the circumstances and decide for themselves, i.e. in practice take the risk of the EU Commission later investigating and finding an infringement.

Marketing arrangements which do not fall within the prohibition, or which can qualify for exemption are reasonably limited in practice. Examples include: 

  • Joint marketing between non-competitors will normally fall outside Article 101(1) 
  • Joint marketing by competitors or potential competitors where either cannot enter or remain on a market on its own, for reasons of finance, technology, experience, risk or other factors, may be exempted in appropriate circumstances

The consequences of a finding that an agreement or arrangement is in contravention of Article 101(1) are draconian, and include: the possibility of a fine of up to 10% of the worldwide turnover of the Group company in the preceding financial year; reputational costs; and the possibility of thirdparty actions for damages. In additional, some national laws have criminal sanctions.

Information exchanges

Under EU competition law rules, the exchange of commercially sensitive information between competitors or potential competitors can normally cause concern in two situations:

  1. Where it is a facilitating mechanism for the implementation of an anti-competitive practice, such as monitoring compliance with a cartel
  2. In addition, it can constitute an infringement in its own right

The actual or potential effects of an information exchange will be considered on a case-by-case basis as the results of the assessment will depend on a combination of factors, each specific to the individual case.

The structure of the market where the exchange takes place and the characteristics of the information exchange are two key elements that the EU Commission examines when assessing an information exchange.

Certain types of information will not normally fall under the prohibition, for example: 

  • Information already in the public domain
  • Historic information. But query on a case-by-case basis what is historic in any particular case. (Data can be historic, recent or future. Note that recent and particularly future data exchanges present competition issues.) 
  • Sufficiently aggregated information. The level of aggregation will be closely scrutinized

On the other hand, information which is not historic and relates to parameters of competition, such as price, capacity or costs will be considered commercially sensitive. The exchange of such data between competitors or potential competitors is more likely to be caught by the prohibition.

The consequences of a finding that an agreement or arrangement is in contravention of Article 101(1) apply equally to infringements relating to exchanges of information, and include, as above: the possibility of a fine of up to 10% of the worldwide turnover of the Group company in the preceding financial year.

Profit sharing mechanisms (PSMs) and territorial/destination restrictions

The situation with respect to destination or territorial restrictions now appears well settled in EU law. The EU Commission also considers the situation regarding PSMs as settled.

Since 2001 the EU Commission has investigated and closed cases against a number of companies, including: Norwegian Gas Producers; Nigerian gas company NLNG; Gazprom and ENI; E.ON, Ruhrgas and Gazprom; GDF, ENI and ENEL; and most recently the import of Algerian gas in to Europe.

Destination restrictions

The EU Commission has consistently maintained that destination restrictions are illegal under EU law, and moreover it has said that they are hardcore restrictions (i.e. the most serious kind).


The position regarding PSMs has been a little more complicated, but the EU Commission clarified its position regarding PSMs in the Algerian case. 

  • This has probably been the longest and most fraught of the investigations. It finally settled in July 2007 
  • The EU Commission closed its file subject to (in addition to the destination commitments described above) a commitment not to insert PSMs in new LNG contracts under Free on Board (“FOB”) and Cost, Insurance and Freight (“CIF”) conditions when the contracts are related to supply of gas to the EU 
  • Because title and risk does not pass until destination under a Delivered ex Ship (“DES”) agreement, the EU Commission found that PSMs could be applied in DES contracts

Jurisdictional issues – application of EU law

An effect on trade in the EU

In order for EU law to apply the EU Commission must establish that there is an effect on trade between Member States (generally described as an effect on trade in the EU), and that such an effect is appreciable. However, these requirements are in practice normally easily met.