Energy Disputes of the Future: Will Arbitration Still Be the Go-To Process for Resolving Them?

Published on: 31/05/2022

Queen Mary University of London and Pinsent Masons partner on a major global survey due out in early 2023

Arbitration is still the process of choice for the determination of cross-border commercial and investor-State disputes in the energy sector. But will this continue to be the case given the many profound changes currently affecting energy resources, production and markets worldwide?

Pinsent Masons is delighted to be partnering with Queen Mary University London on a major global survey focusing on the future of energy arbitration. This will be the thirteenth major empirical International Arbitration Survey conducted by QMUL and their first International Arbitration Survey for the energy sector in nearly a decade. It is clearly timely.

The causes of energy disputes are evolving fast and the number of disputes is growing exponentially, notably because of the urgency of addressing the energy transition.

In the oil and gas sector, as the pressure mounts to reduce reliance on fossil fuels, so too does the need to retire and decommission assets.  On the issue of pricing, volatile gas prices are causing price review and supply disputes to grow.

Reaching net zero emissions, the gravity of which is driven home, among others, in the Glasgow Climate Pact reached at COP26 last November and the Intergovernmental Panel on Climate Change’s Sixth Assessment Report published in April, means a constant need for innovation, efficiency and new technology. First-time players and cutting-edge products are emerging in the renewables field, along with unprecedented risks and new disputes, in areas such as design and defects.

Many energy and infrastructure businesses will continue to be affected by supply chain issues involving the availability and cost of raw materials and components and occurring for reasons as broad as Brexit, the COVID 19 pandemic, climate change and geopolitical tensions.

Issues specific to the climate change agenda are also generating a myriad of issues, one example among many being disputes arising from sustainability.

The need for investment in new technology can also be expected to result in more disputes between states and investors. The future of investor-State dispute settlement (ISDS) has generated much recent debate, for example, in relation to renegotiation of international investment agreements (IIAs) and the European Union’s policy to create a multilateral investment court instead of the current investor-State arbitration system. One of the most significant developments for intra-EU investors is the September 2021 judgement of the Court of Justice of the European Union in Moldova v Komstroy, LLC which found that the investor-State arbitration clause in the Energy Charter Treaty (ECT) does not apply to intra-EU disputes.

What does all this mean for key players in the sector and how will these and a whole range of other energy-related disputes be resolved in future? Will international arbitration continue to be the preferred dispute resolution method? Is it still fit for purpose? How will it be most efficient when coordinated with other processes such as mediation, adjudication and dispute boards? What will happen next in the investor-State space?

The purpose of this blog is not to provide answers but to alert the sector to our wish that the survey be an opportunity for them to provide their views and share their experience in order to inform dispute resolution processes and practice going forward.

The survey will first and foremost seek the views of users of arbitration such as states, energy majors, developers, operators, oil services companies, contractors and suppliers, as well as disputes practitioners, arbitrators, mediators, adjudicators, academics, experts, forensic accountants and arbitral institutions and organisations. It will examine the causes of current and future energy-related disputes and how international arbitration will be deployed at both commercial and investor-State level to resolve them.  It will consider the impact of climate change and why arbitration should remain the likely forum to resolve disputes arising from climate change. It will also look at how vulnerable the sector remains to the impact of the fluctuations in oil and gas prices and what this means for the types of disputes we can expect to see being referred to arbitration, whether through arbitral institutions or ad hoc procedures, over the next decade and beyond. Finally, the survey will address innovation in arbitration, particularly around technology, how this is being supported by the arbitral institutions and other participants, and the changes we can anticipate in how cases are prepared and determined, including whether this will provide parties with greater access to arbitration. It will have wide geographical scope, recognising that developments in the sector are occurring at different speeds in different jurisdictions.

As with previous QMUL surveys, the research is being conducted in two phases, one quantitative and one qualitative. Phase 1 involves the preparation of an online questionnaire which will include input from a focus group of industry experts to ensure that the survey is of high relevance and value. It is expected that the questionnaire will be released for responses in Q2 of this year. Phase 2 will involve detailed interviews with a selected number of survey respondents. The survey is due to be launched in early 2023, with several soft launch events in the last quarter of 2022, including at Hong Kong International Arbitration Week and the Seoul Arbitration Festival.

The survey is a major event in the arbitration calendar. We are aiming for record participation and are excited about its potential reach and impact. Please look out for it on social media and participate – we value your views!

 

Written by the Pinsent Masons survey team: Partners Jason Hambury, Nicholas Turner, Charles Blamire-Brown, Clea Bigelow-Nuttall and Daniel Gardiner, and Vario Consultant Gillian Carmichael Lemaire.