Gas Pricing Disputes: Practical Tips from the Frontline

Energy Alert


In recent years, the European gas market has experienced a 'perfect storm': an increasingly liberalised market has seen an increase in gas supply (resulting from, amongst other things, the "shale gas revolution" in the US) and, in some sectors at least, declining demand (largely as a consequence of the prevailing economic climate, the increasing availability of renewable/ alternative sources of energy and the increasing competitiveness of coal).

The consequent pressure on prices in the market, and the ongoing oil, gas and natural resources global pricing crisis has placed strain on long-term gas supply contracts to continental Europe under which the price of gas is typically (or at least often has been) set by reference to an oil-linked formula.

In order to weather the storm, purchasers of gas have sought to take advantage of contractual price review mechanisms about which there have been a number of disputes. There has been an increase in the number of arbitrations on these issues and a number of multi-million euro arbitral awards have been made. Even a minor change in the contract price can have a significant financial impact on buyers and sellers due to the large gas volumes involved. That trend has been focused on the European market but is expected to be a global trend in coming years.

In this article we draw on our experience of the issues that commonly arise in gas pricing arbitrations and reflect on both how parties can protect their position once a price review is triggered and on how they can increase their prospects of success in the battle which can ensue.

Read also:
A guide to termination of long term contracts in the energy sector
Exclusive remedy clauses: A cautionary tale