Key Takeaways for the Future of International Energy Arbitration - 2022 Queen Mary University Survey

The global energy crisis together with the ongoing energy transition received top billing for 2022 and, from an international disputes perspective, will continue to dominate in both the short and medium term. In particular, disputes arising from price volatility of raw materials and energy are expected to be the leading cause of disputes, followed by the construction of energy infrastructure (which was the leading cause of disputes in the last five years). International arbitration remains the clear choice for the resolution of energy disputes.

On 20 January 2023, Queen Mary University of London (with Pinsent Masons) published a detailed 50-page report titled the “Future of Energy Arbitration Survey Report”, with special attention to disputes in the energy sector against the backdrop of recent global events and the international agenda towards clean energy. Over 900 respondents took part in the survey across a broad range of common and civil law jurisdictions and the specific findings are included in the Report (found here). 

The Report examines two primary themes: 

• “the prevailing drivers of disputes in the short to medium term which have developed over the last 12 months”
• “how international arbitration can adapt to…best serve the needs of the energy sector”.

This Client Alert sets out a few key takeaways from the Report.

• Leading Causes of Energy Disputes: The price volatility of raw materials and energy is expected to be the leading cause of disputes in the short to medium term. The unpredictability of the price of energy commodities has been driving contractual instability and impacting the “energy revenue stream”. The “construction of energy infrastructure and provision of equipment (including supply chain)”, which was previously the leading cause of energy disputes, is now expected to be the second leading cause followed by changes in government policy, such as changes to taxation policies on the energy sector. The root cause of this macroeconomic trend is multifactorial, but, as would be expected, the Russia/Ukrainian crisis and consequent sanctions are considered to be major contributing factors.  
• Ukraine Conflict: In addition to creating price volatility, the Report found that the Russia/Ukraine crisis has resulted in greater reliance on and “investment in fossil fuels including coal (as well as a diversification of LNG Supply)” to enable greater energy security. This may impact the realization of the energy transition to clean energy in the short to medium term, and maintain the prominence of fossil fuel energy for a longer period of time.
• Preferred Method of Dispute Resolution: As expected, arbitration remains the favorite method for the resolution of energy disputes. The preference for international arbitration is reinforced by an increase in the registration of such disputes in major arbitration institutions, such as the ICC and LCIA. However, many respondents to the survey indicated they would prefer alternative forms of dispute resolution, such as negotiation, mediation, litigation, dispute boards, expert determination and/or combination of these methods.
• Geography: Europe, Asia, the Middle East and Africa (in descending order) are all expected to have the greatest increase in energy disputes. Europe is expected to have the “greatest increase” as it is “at the crossroads of an energy crisis”.
• Arbitral Seat: London, Singapore, Paris, Geneva, Stockholm, New York, Dubai and Hong Kong, followed by other international seats (in descending order), are the most popular choices for the seat of arbitration for energy disputes.
• Important Practical Features: Neutrality, technical expertise of arbitrators, and the wide enforceability of arbitral awards, followed by confidentiality (in descending order), are amongst the features of arbitrations that are selected as being most important for energy disputes. Local courts are viewed as unsuitable for such disputes, as such disputes, amongst other things, often requires technical specialism afforded by arbitration.
• Important Procedural Elements: The “technical expertise (tribunal/counsel/experts)”, expedited procedures (such as faster constitution of arbitral tribunals and time limits for the issuance of awards) and flexible proceedings (in descending order) are amongst the procedural elements considered important for energy disputes.
• Opportunities for Improvement: Arbitration parties want the arbitral process to become more efficient and for more mechanisms to become available to expeditiously dispose unmeritorious claims and mala fide delay tactics.
• Green Arbitrations: Although respondents considered green credentials to be important, “green credentials were at or near the bottom of their list of priorities” against other key factors involved in the selection of any law firm, expert, institution and/or arbitrator. The most popular item selected for having green arbitrations is “using videoconferencing for meetings and hearings”, “avoiding unnecessary travel, particularly flights” and the “use of electronic bundles at hearings” (in descending order). Respondents from the Middle East considered that green arbitration credentials are more likely to influence their choice of arbitral service providers compared with respondents from other continents.
• Third-Party Funding: This is expected to increase for energy disputes for various reasons, including the large amounts in dispute, increased need for cashflow, and the lucrative nature of such disputes from the perspective of funders.