As the energy transition progresses, the norms and practices of the sector are shifting, with new entrants, contract terms, and regulatory structures. For a capital-intensive industry with long­-term project horizons, this moment of transformation may be particularly conducive to disputes.

Navigating contracts in a new United States (U.S.) energy landscape

Many long-term energy contracts in the U.S. were drafted and entered into in a very different energy environment, well before the country became a net energy exporter in 2019, thanks to a surge in domestic crude oil and natural gas production. As a result, long-term contracts which were initially structured to ensure delivery of oil or liquified natural gas (LNG) into the U.S. now give rise to issues of contractual interpretation, in this novel context where the U.S. has become an exporter.

Further, as the war in Ukraine has caused the price of U.S. oil and gas to increase, the major exporters have begun selling oil and gas to those who would pay the highest prices, as opposed to their established co-contractors, leading to several complex, cross-border arbitrations being initiated on these grounds.

Trends in European gas price reviews

In Europe, old generation long-term gas sale and purchase contracts are gradually being replaced by more modern agreements that reflect the new European gas hubs, resulting in fewer gas price review disputes, in contrast, for example, to Asia which is facing a growing number of these claims.

This is perhaps owing to the fact that previously, buyers and sellers would have to arbitrate the price as circumstances changed. Now, however, with European hubs creating more stable and reliable prices, there is less of a need for such arbitrations, the price simply tracking the index. It remains to be seen how this trend will evolve over time.

Looking ahead: A potential rise in climate change litigation

This summer, the United Nations Environment Programme published a report describing climate change litigation worldwide, with 75 percent of the current cases located in the U.S. These increasingly original cases – such as a Montana case from young people asserting a constitutional right to a healthy environment, or California’s case against oil and gas companies for downplaying climate change – are likely to rise in coming years.

While these cases have received a mixed reception in the U.S., with many pending appeal, national courts in the European Union (EU) are increasingly finding both state and energy companies liable for their failure to meet climate targets. The 2021 “case of the century,” for example, saw a Paris Court find the French state liable for failing to meet decarbonization goals, while a court in the Netherlands recently ordered an oil and gas company to reduce its emissions that same year. These are in addition to cases brought by individuals and private companies against states for their actions related to climate change and the energy transition.

In summary, for an industry facing momentous change and considerable disruption, one thing is clear: there are more disputes to come.

For an industry facing momentous change and considerable disruption, one thing is clear: there are more disputes to come.