International Arbitration of LNG Disputes - Chapter 15 - Leading Practitioners’ Guide to International Oil & Gas Arbitration

Author(s):

David E. Harrell, Jr.

Derrick B. Carson

Ann Ryan Robertson

Page Count:

28 pages

Media Description:

1 PDF Download

Published:

August, 2015

PDF612.56 KB

$40.00

Description:

Originally from The Leading Practitioners' Guide to International Oil & Gas Arbitration

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I. INTRODUCTION

Liquefied natural gas, commonly referred to as LNG, provides a

means of moving stranded gas supplies to market, or moving supplies

to markets with stronger demand and higher prices than those

available in the producer’s domestic market. In the liquefaction

process, gas is cooled so that it shrinks to a mere fraction of its

original volume, making it easier to transport. In this liquid state, the

LNG is loaded onto vessels that provide both safety and insulation.

At the receiving port, the LNG is off-loaded into well-insulated

storage tanks. Regasification converts the LNG back into its gaseous

form, and then it enters the pipeline or other transportation systems

for ultimate delivery to the end-user.

Because of global transformation in gas supplies and

consumption, the face of future LNG disputes may change, but the

issues likely will not. Not surprisingly, pricing disputes in long-term

contracts should continue to be at the fore of LNG disputes. As

products move in the global market, shipment disputes and disputes

regarding supply interruptions and force majeure events will also occur.

This chapter will explore the role that LNG has in the global energy

market, the effect of new market entrants on the nature and location

of dispute resolution, and the issues that typically arise in LNG

disputes.

II. THE CHANGING GLOBAL MARKET WILL AFFECT

WHERE DISPUTES ARISE AND HOW THEY ARE

RESOLVED

A. The Global LNG Market Has Seen the Entry of New Importers and

Exporters

In 2011, the United States imported approximately 349 billion

cubic feet (Bcf) of LNG from seven different exporting countries,

with the largest being Trinidad and Tobago.1 That year, total global

LNG trade totaled 330 billion cubic meters (Bcm) of LNG, and it

held steady the following years.2 But those numbers do not expose

the huge regional shifts in trade. In 2013, European LNG imports

dropped by 17%,3 largely the result of coal presenting a cheaper

alternative. North American imports held steady, primarily the result

of an almost 63% increase in Mexican imports, which offset

decreases in imports by the United States and Canada,4 in large part

the result of the shale gas boom. In contrast, South American

imports rose 29%, and Asia Pacific imports increased by over 6%.5

Not only have there been changes in who is importing LNG, but

over the last 25 years, new exporters have risen to dominance. In

1995, Indonesia and Algeria accounted for over half (55%) of the

world’s LNG exports, with Malaysia and Australia together

accounting for another 26%.6 By 2009, Qatar accounted for 20% of

the global LNG exports, with Malaysia, Australia, and Indonesia

together providing another 33%.7