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Gas pricing disputes set to rise in Asia-Pacific
International arbitration is set to feature more heavily in the resolution of gas pricing reviews in the Asia-Pacific region in the near future, according to a new analysis.
Tony Zhang
Allen & Overy partner David Jenaway, in a chapter recently released in the second edition of Gas and LNG Price Arbitrations: A practical handbook, went through the different stages of a gas pricing dispute, along with the various stages of the arbitral process due to the growing phenomenon of LNG price arbitrations in the Asia-Pacific region.
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The chapter authored by Mr Jenaway, who has acted (and continues to act) on a number of price reviews in the region, addressed why price reviews have (to date) rarely reached international arbitration in Asia, the unique characteristics of Asian price review clauses and processes and that arbitration is set to play a role in the region going forward.
“The Asia-Pacific presents a unique context for LNG gas pricing,” Mr Jenaway said.
“The region currently accounts for a very substantial proportion of global LNG demand, with long-standing import demand from Japan, Korea and Taiwan now supplemented by demand from China, India, Thailand, Pakistan and Bangladesh.
“Historically, importers in Japan, Korea and Taiwan frequently negotiated revised pricing, and rarely resorted to formal dispute resolution processes (such as arbitration) during regular pricing reviews.
“Now, the state of the LNG market is changing rapidly, and the recent volatility in oil and gas markets means we are seeing a growing incidence of price reviews in the region being resolved by formal dispute resolution, including arbitration.”
While the Asia-Pacific region is home to the world’s largest importers and producers of LNG, the report notes that the resolution of price reviews through some form of formal dispute resolution process has been a relatively rare occurrence.
This is in sharp contrast to other global regions, particularly in Europe, where the resolution of gas price reviews via arbitration and other forms of formal dispute resolution has been far more common.
Mr Jenaway said this trend of price reviews being resolved by arbitration is likely to accelerate in the near future, given the sheer scale of the LNG projects recently developed within the region.
“It is the fact that many of the supply agreements that underpinned those investments are due for a price review, and the fact that arbitration is either mandated for, or seen as well-suited to, resolving such disputes,” he said.
“As these price reviews arise and their resolution through formal dispute processes becomes more prevalent, all market participants should be preparing for a rise in these types of disputes across APAC, and be aware of the unique characteristics and challenges that this market presents.”
