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
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.