The gas sector is undergoing a metamorphosis with market liberalization, the COVID-19 pandemic and with the energy crisis in Europe, according to Moritz Keller, an arbitration partner at Clifford Chance, a London-headquartered international law firm on Wednesday.
During the Flame Energy and Natural Gas Conference in Amsterdam, Keller said that market liberalization has increased competition and opened the floodgates to private sector investment in an industry that is the most heavily regulated in the world.
He said that the stability of regulatory frameworks is key to both attracting investments and ensuring they remain viable. However, he warned of the difficulties of over-regulation, which he said could transform viable investments into unviable loss-makers given that states and state-owned entities are often counterparts under licenses and other agreements in the gas sector.
However, a liberalized market comes with its own hurdles, as market speculation leads to heightened gas price volatility, which has been seen with the tendency to move away from long-term contracts to spot price purchases.
He said that gas storage contracts have frequently been subject to arbitration across Europe, and this has intensified during the COVID-19 pandemic when deliveries were affected, and with the gas price crisis in Europe.
'Despite maturing of some markets, pricing disputes continue to remain a common feature,' Keller said.
'Storage customers argue that long-term, fixed-price contracts are obsolete and argue for the application of indexed pricing or a price reduction. Claims are based on price review clauses and at times competition law,' he said.
He said the three main issues on the table during the energy crisis were storage, delivery and transport.
'Price volatility could cause defaults in delivery obligation when prices are high. Counterparty risk is due to market speculation, enforcement of security interests etc. Gas transport customers are now also seeking amendments or termination of long-term gas transport contracts,' he said.
By Murat Temizer in Amsterdam
Anadolu Agency
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