The more mainstream view from within the industry is that when faced with a dispute, particularly over a contract which is especially commercially or strategically significant or of unusually high value, companies are putting considerable efforts into resolving matters without recourse to dispute resolution. This includes reaching agreements which harness existing market opportunities to the benefit of all parties, even when the subject matter of that agreement does not go to the heart of the dispute. This might manifest itself, for instance, in the arbitrage of LNG cargoes into higher priced markets, coupled with an appropriate profit share in order to offset market-related losses in a gas supply contract.

While existing and future commercial relationships do often need to be considered, some companies do not have that luxury when faced with severe financial difficulty and / or external events. It follows that contractual provisions concerning force majeure, change of circumstance and hardship are under increased scrutiny and the choice of law – which extends beyond a simple civil law versus common law choice – is increasingly important in this context. As ever, it pays to know where the vulnerabilities and opportunities lie before disputes arise.

In an industry where 20 year contracts are commonplace, many say it is too soon to feel the true effects of a downturn which hit its nadir only five months ago. Indeed, the consensus at the GAR Live Energy Disputes event appeared to be that gas pricing disputes – where a more sustained economic change is often needed to trigger a review or renegotiation clause in an oil-linked gas sales contract – were an area in which further disputes are very likely in the future if a comparatively low oil price remains. Perhaps ironically, given that many such arbitrations have been argued on the basis of a long-term decoupling of oil and gas prices, some of the first claims to be launched may be parties who now feel aggrieved because of “too much hub” (i.e. tied to the price of gas at various geographical hubs) in pricing formulae. Clyde & Co will analyse the possible effects of oil price changes on gas price arbitration in more detail in a forthcoming post.

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