Brattle principal Paul Carpenter and senior associate Toby Brown have authored a newsletter demonstrating the need for comprehensive economic analysis to help avoid expensive mistakes during natural gas contract price arbitrations, which are likely to become more prevalent and contentious in the near future as the prices of competing fuels such as oil diverge from the prices for natural gas.

In current market conditions, where end-customer demand is falling below buyers’ take-or-pay commitments and changes in oil prices have put significant price shifts on the table, parties contemplating price renegotiations must be confident in the quality of their economic analyses. Over the course of some dozen arbitrations in Europe and Australia, Brattle experts have seen claims for significant changes in price from both buyers and sellers, many of which have been founded on mistaken or inappropriate analyses and can be expensive because of the value resting on the outcome of the arbitration. In the newsletter, the authors discuss four economic aspects of recent natural gas arbitrations: interpreting market value; using down-stream prices to infer the value of gas; lack of robust statistical analysis; and defining the correct market.

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