International Arbitration in the Energy Sector

enegry sector

Introduction

Since most energy disputes are international and they are successfully resolved through international arbitration, the terms Energy and Arbitration are beginning to get more intertwined. Though there has been much success in this, a court for international arbitration may need to be created specifically for resolving energy disputes.

Upstream and downstream oil

Due to several arbitral awards from energy-related disputes which tops history records, energy arbitration is beginning to rule in international arbitration.

The drop in oil prices in recent years has led to a decrease in exploration with projects paused or completely stopped. This has led to the prevalence of joint production agreements which brought an increase in budget disputes while disputes between employers and contractors are less…

But with the price of oil now increasing, new bankruptcies for exploration are seeing a decrease. And most of the new disputes brought by insolvency tend to get to national courts compared to international arbitration through low margins caused quite a several disputes.

The gas sector

The gas division has also caused a significant number of international disputes and subsequent energy arbitration. Due to the number of LNG contracts indexed to oil, there has been a high number of international arbitration related to this as many buyers try to misuse price review stipulations in long term contracts for supply according to change in market conditions.

Arbitration is usually used to rectify such issues. Due to the special nature of LNG price disputes, they have introduced a new dimension in energy arbitration. They are one of the prime-value arbitrations in the commercial division globally.

Investor-state disputes

In the past few years, the number of BITs, bilateral investment treaties have been declining. This may affect the energy sector negatively, where foreign funding’s are crucial.

The UNCITRAL has picked up more than a few issues concerning ISDS (Investor-State Dispute Settlement) and subsequently made a note on “Possible Reform of the settlement of investor-state disputes. The also EU proposed the inception of a court for multilateral investments in place of the arbitrations of investor-state disputes.

Despite this, the record of investor-state conflicts have had a high record, and the continual investment in cross border ventures makes it far-fetched that investor-state energy arbitration will cease soon, it will be more of a slow burn till it ceases completely.

And as more state companies expand and begin to invest in international markets, disputes of a broader range are bound to come up

Climate-related disputes

Energy companies have their environmental impact increasingly scrutinized. This is bound to bring up disputes regarding climate change and may involve private and or state entities, which may end up in national courts because of its public policy facet.

As laws on climate change grow, the risk posed to companies in the energy division increases where the impact on the environment is unavoidable. The availability of plaintiff funding will be a significant aspect however, it is sourced.

Belt and Road Initiative

Another highlight in energy arbitration is the Belt and Road Initiative of China. Worth about $900 billion, it has projects spread across the land and ocean-based Silk Roads, which focus on transport, energy and infrastructure, aiming to connect China with the other parts of Asia. With the involvement of investors and contractors globally, there is a vast scope for commercial conflicts.

As these projects proceed, the International Chamber of Commerce has planned to launch a commission to address construction disputes that will unavoidably rise from the Belt and Road Initiative, while the Hong Kong International Arbitration Centre has set up a committee to help with the disputes regarding the Belt and Road Initiative.

The proliferation of new arbitral seats

Lastly, international arbitration is gradually evolving and cannot be considered a western game anymore as new players are rising from Africa and Asia and are choosing their seats for disputes at locations outside the US.

For instance, more arbitral centres have been placed in Africa due to the insistence on African seats and arbitration centres based in Africa. These new aspects being introduced to increase arbitral business brings uncertainty that did not exist previously. But if the learning curve is safeguarded, then they should present no problem and be welcomed.

Conclusion

As known with the energy sector, arbitration remains a method for resolving disputes that stem from uncontrollable variables.

International arbitration in the energy sector can be quite a complex process. Do you need a team of specialized lawyers adept at these matters at your disposal? Then you have come to the right place. Contact us now for an initial consultation.


Fredrik Jörgensen

About Rattsakuten

Rattsakutten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuuten handles dispute resolution and Arbitration matters before the SCC ( Swedish Chamber of Commerce ), ICC, HKIAC and several other Arbitration tribunals

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