Assuring Energy Security (2).

Traditionally, international gas trade has been conducted on the basis of long-term (several-year) take-or-pay contracts. Under these contracts, designed to manage risk, the buyer agrees to take a certain volume over a period of time and to pay for that volume regardless of whether it is actually used. In effect, the buyer takes all the volume risk (the risk as to how much gas the end-use market will actually consume). The seller agrees to sell a certain quantity at a price indexed to such factors as the price of competing fuels, the price of electricity, and producer inflation. T