Throughput Agreement Example: A Simple Guide to Understanding
A throughput agreement is a contract between two parties that outlines the terms and conditions of the transfer of a specific type of goods or services. It is commonly used in industries such as oil and gas, where a pipeline owner agrees to transport a specific amount of product from a producer.
In this article, we will provide an example of a throughput agreement and explain its various components.
Overview of a Throughput Agreement
A throughput agreement typically involves three parties: the pipeline owner, the producer, and the shipper. The pipeline owner is responsible for the transportation of the product, the producer is the owner of the product, while the shipper is the customer who purchases the product.
The agreement usually covers the quantity of the product to be transported, the delivery schedules, and the rates charged for transportation. It may also include details on the quality specifications of the product, insurance coverage, and liability of each party in case of any damages or losses.
Throughput Agreement Example
Let`s assume that XYZ Pipeline Inc. owns a pipeline that is used to transport crude oil from the producer, ABC Oil LLC, to various customers. ABC Oil LLC extracts crude oil from a specific oil field, and they have a contract with XYZ Pipeline Inc. to transport a minimum of 10,000 barrels of crude oil per day.
The throughput agreement between XYZ Pipeline Inc. and ABC Oil LLC includes the following key points:
1. Quantity of Product to be Transported
The agreement specifies that ABC Oil LLC will provide a minimum of 10,000 barrels of crude oil per day to XYZ Pipeline Inc. for transportation. The pipeline owner will ensure that the product is transported to the customers` destination on time according to the shipper`s schedule.
2. Delivery Schedules
The agreement includes the delivery schedules for the crude oil. XYZ Pipeline Inc. will transport the crude oil from ABC Oil LLC`s production facility to the shippers` destinations as per their schedule. The delivery schedules may be revised if there is any change in the production capacity of the oil field or the demand for the product.
3. Rates Charged for Transportation
XYZ Pipeline Inc. will charge a transportation fee for the crude oil based on the throughput volume. The pricing may be based on a fixed fee or a variable fee depending on the volume transported. The prices may also be revised periodically based on market conditions.
4. Quality Specifications of the Product
The agreement specifies the quality specifications of the crude oil that ABC Oil LLC will provide to XYZ Pipeline Inc. The product must meet certain quality standards to ensure that it can be transported safely and efficiently through the pipeline.
5. Insurance Coverage
The agreement includes details of the insurance coverage taken by the parties to cover any damages or losses that may occur during transportation. The pipeline owner will usually have insurance to cover any damage to the pipeline, while the producer will have insurance to cover any damages or losses to the product.
6. Liability
The agreement includes provisions to determine the liability of each party in case of any damages or losses during transportation. This may include clauses related to force majeure events, negligence, or breach of contract.
Conclusion
Throughput agreements are important for ensuring the efficient transportation of goods or services between different parties. By specifying the quantity, delivery schedules, rates, quality specifications, insurance coverage, and liability, they help to minimize the risks and ensure that all parties fulfill their obligations.
As with any contract, it is important to carefully review the terms and conditions of a throughput agreement and seek legal advice where necessary to ensure that all parties understand their obligations and rights.
