Price Re-Openers in Natural Gas Supply Contracts: Avoiding Costly Mistakes in Arbitration
Published by The Brattle Group, Inc.
In locations without liquid spot markets in natural gas, mostly outside North America and the UK, producers typically sell gas to large buyers under longterm contracts with a periodic “price re-opener” clause. The price re-opener allows the parties to renegotiate the price to take into account market movements, with the backstop of binding arbitration if they fail to agree to a price.
Natural gas contract price arbitrations 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. The level and volatility of such divergence will put pressure on the economic viability of price re-opener clauses that are linked to oil prices.
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. These changes have been founded on mistaken or inappropriate analyses and can be expensive because of the value resting on the outcome of the arbitration.
