International Arbitration and Energy Disputes1

Legal scholars have sometimes asked themselves if a particular economic sector or industry exhibits features in its approach to settling disputes that are unique to that sector or at least are shaped by the sector’s specific features.² If they turned to disputes arising from the energy sector, they would immediately see that where they have a dimension that is not purely domestic, the parties have a strong preference for arbitration as the means of settling their disputes, rather than having recourse to the relevant national courts. This article will identify and critically assess the features of international energy arbitrations that arise out of transactions, projects, and operations in or related to the energy sector. It seems timely to do so as public policy around the world grapples with the challenges of Net Zero goals. This rapidly evolving process is unlikely to prove linear or consistent among the nearly two hundred nation states it involves. Indeed, it is likely to lead to greater volatility among the legal regimes that support international energy transactions, projects and operations, a context in which disputes may well proliferate in the coming decade.

Energy disputes with an international element have yielded awards that are often influential and a source of much comment. To date, there have been several indicators of this influence. The one found most often is a volume-based indicator: that is, by calculating the proportion of known disputes concerning different kinds of energy vis-à-vis the total number of known disputes, usually relying on data from an arbitral institution. Statistics regularly appear from ICSID, the ICC and other distinguished bodies that confirm a relatively high proportion of disputes that originate from this sector of the international economy: among the investor-state cases before ICSID, those concerning energy amount to around 46 per cent of the total, even without the inclusion of energy-related cases in sectors such as those in construction, transportation and finance.³ Another indicator of influence is jurisprudence-based: the propensity of energy disputes to generate individual awards or groups of awards and decisions that have an impact on jurisprudence in the arbitration world generally. Early examples of this impact were the Aminoil and Libyan oil cases from the last century.⁴ An indicator of attention or comment rather than impact on case load or legal doctrine is the scale factor that is evident in some energy disputes. The controversial award in the Yukos case of around $50 billion against the Russian Federation is one example of this, being the largest award ever made in terms of quantum.⁵ There are other examples of very high-value awards in energy disputes that have attracted widespread comment in the arbitral community.⁶ Among groups of influential cases arising from similar fact-patterns, there are the clusters of arbitrations on utility pricing arising from default by a sovereign state (Argentina/gas and electricity utilities⁷), realignment of state energy policies (Venezuela/oil and gas assets),⁸ changes in policies on support for renewable forms of energy (Spain and Italy, mostly),⁹ or the various kinds of changed circumstances that have triggered waves of gas price arbitrations.¹⁰ Whichever criterion is applied, evidence of the wider impact of energy disputes on international arbitration is considerable and persuasive.

Some forms of energy have had a greater impact on international arbitration than others. To date, the hydrocarbons sector (oil and gas) has generated by far the most arbitrations of any form of energy, whether the arbitrations are commercial in character (usually involving a contractual dispute between parties, one or both of whom may be a state or state-owned entity) or investment treaty based (in which one of the parties in the dispute is a state party to the treaty) or indeed between states. Within the hydrocarbons sector, there is a subset of highly technical, complex arbitrations concerning gas pricing, mostly commercial in character and arising from contract performance. In recent years, renewable forms of energy (wind, solar, hydropower, biomass, tidal, geothermal, green hydrogen) have in some contexts been the focus of multiple arbitrations between investors and states, mostly brought under the sector-specific investment treaty, the Energy Charter Treaty (ECT). Concessions to operate electricity networks have generated a fair number of arbitrations in the light of programmes of liberalisation in which some states opened these up to foreign investors. The nuclear sector has generated several notable arbitrations, mostly concerned with construction issues arising from delays and cost-overruns.¹¹ By far, however, the energy sectors with most impact on international arbitration have been the hydrocarbons and wind and solar forms of renewable energy.

The evidence of a link demonstrating the influence of energy disputes and international arbitration is clear. The existence of a dedicated treaty for the settlement of energy disputes between investors and state in energy – the ECT – has been a significant way in which energy arbitrations have grown considerably in the past decade. Whether this influence is the result of anything legally significant about the production, supply and storage of energy is less clear. Many lawyers, arbitrators and scholars have asked whether there is anything genuinely special or different about an energy dispute that has implications for arbitral proceedings, and if so, what that is.¹² This article will argue that such distinctiveness does indeed exist and will seek to demonstrate this by identifying and examining eight features common to energy disputes that can influence their resolution by international arbitration. At the same time, it seeks to provide an overview of those areas of international arbitration in which the energy sector plays a major role, both in terms of substantive impact and in terms of procedure.

The subject matter of an energy dispute concerns energy materials and products, energy related assets such as hydrocarbon exploration and production rights, power generation facilities, processing structures such as LNG terminals, transport or distribution facilities, or an economic activity such as exploration, generation, extraction, production, refining, storage, transportation by land or sea, transmission, distribution, trade, marketing or sale of energy materials or products.¹³ The rights and obligations at issue in energy disputes can arise from a wide range of instruments such as contracts, concessions, or licences. Where these disputes have an international character, the mode of resolving them typically preferred by the parties – whether private or public in terms of their ownership and control – is international arbitration, arising from a contract or an investment treaty or in some cases, both. The spectrum is therefore a wide one, encompassing investor-state disputes, construction/industrial plant disputes, commercial disputes involving performance and price revisions and insurance disputes. Litigation and the use of courts for enforcement purposes plays an important secondary (and inter-relating) role. As yet, mediation plays no significant role in this sector.