If you are a seller or purchaser of natural gas imported from Canada or Mexico, or exported to either country, under an NAESB Base Contract for the Purchase and Sale of Natural Gas (NAESB Contract), you should carefully review such agreements, including any special provisions or transaction confirmations to consider the impact of potential tariffs that may be imposed by the United States on natural gas imported from Canada or Mexico or imposed in retaliatory tariffs by those countries on natural gas exported from the U.S.

On February 1, 2025, the president announced the imposition of tariffs on goods imported from Canada and Mexico. The general tariff would be 25% for goods imported from both countries; however, a subset of defined energy resources imported from Canada would be subject to a 10% tariff.

Originally, the tariffs were scheduled to be effective on February 1, but on February 3, after discussions with both Canada and Mexico, the president announced that the tariffs would be effective March 4, 2025. Although it is not yet clear whether interim negotiations will affect the imposition of these tariffs, it is important to be prepared if the tariffs do go into effect as planned on March 4.

Many purchasers and sellers of natural gas use the NAESB Contract to buy and sell natural gas. Several base provisions of the NAESB Contract, or added Special Provisions, could affect which party is responsible for tariff payments, whether through a posted increase to the applicable published index price or as a tax to be paid in addition to the index price.

If the index price in your NAESB Contract is on the U.S. side of the border with either Canada or Mexico, that posted index price may take into account any U.S. tariffs since the gas has been imported. It is important to note that it is still unclear whether the cost of an import tariff on natural gas will be included in the posted index price, whether the NAESB Contract’s index price is at or near the border, or at a liquid trading hub. Special provisions or transaction confirmations under the NAESB Contract also may address this issue. Further, if your NAESB Contract includes a Canadian Addendum, that should be carefully reviewed as well.

Section 6 of the NAESB Contract defines “taxes” to include: “taxes, fees, levies, penalties, licenses or charges imposed by any governmental authority.” An argument can be made that tariff costs are government-imposed “taxes” under this definition.

Section 6 provides two options for responsibility for taxes. Either the buyer pays taxes at and after the delivery point, or the seller pays taxes before and at the delivery point. We suggest you review the selection box on page two of your NAESB Contract to determine which option applies.

Also, some parties have added a definition of “Applicable Laws” or other special provisions to their NAESB Contract for the purposes of addressing responsibility for new taxes. Accordingly, you should also review any special provisions or transaction confirmations to confirm the agreed-upon structure.

Finally, Section 14 of the NAESB Contract addresses market disruptions and defines “Market Disruption Events.” The definition includes, among other things, “(e) both Parties agree a material change in the formula for or the method of determining the Floating Price has occurred.” This provision may open the door to negotiations if the appliable index prices are adjusted by the index publishers to reflect any tariffs on imported natural gas.

Please note that this alert does not specifically address the terms of the ISDA Gas Annex, frequently used in connection with gas-fired power generation, or bespoke agreements. If you use an agreement other than the NAESB Contract to buy and sell imported gas, you should carefully review the relevant provisions of such agreements to determine the implications of or responsibility for any tariffs.