April 2019

Price reviews and arbitrations in
Asian LNG markets

OIES PAPER: NG 144

Agnieszka Ason,
Visiting Research Fellow, OIESThe contents of this paper are the author’s sole responsibility. They do notnecessarily represent the views of the Oxford Institute for Energy Studies or any of
its members.

Copyright © 2019
Oxford Institute for Energy Studies(Registered Charity, No. 286084)

This publication may be reproduced in part for educational or non-profit purposes without special
permission from the copyright holder, provided acknowledgment of the source is made. No use of thispublication may be made for resale or for any other commercial purpose whatsoever without priorpermission in writing from the Oxford Institute for Energy Studies.

ISBN 978-1-78467-133-4

DOI: https://doi.org/10.26889/9781784671334

iPreface
The concept of price reviews and arbitration to resolve disputes in the Asian LNG market is one which
would not have merited significant analysis only a few years ago. However, these historically
European phenomena, which have been used widely as the European gas market has become morecompetitive under new EU rules, are now becoming relevant in Asia as the global LNG market
develops and the likelihood of disputes between buyers and sellers over prices and contracts acrossthe gas world increases. As a result, this topic is becoming increasingly important and we are gratefulthat the author, Agnieszka Ason, has taken the time to provide an in-depth analysis of the subject.
She starts by reviewing the history of price reviews in the Asian market to date, before looking at thelimited role that arbitration has played so far. She then discusses why the arbitration process is likely
to become more important in the Asian LNG market and looks at some of the lessons that can belearnt from Europe while also considering some of the more specific issues that will need to be facedin Asia. Finally, she looks at some of the key processes that will take place and the roles of the actors
involved, before concluding that, although the transition to a greater use of arbitration in Asia isunlikely to be easy, it will be an essential part of the development of a more market-based pricing
system in the region. We believe that the paper makes an important contribution to the analysis of the
Asian LNG market and hope that it will be useful both for active participants in the LNG market as wellas commentators and analysts of global gas market development.
James Henderson
Director, Natural Gas Programme
Oxford Institute for Energy Studies

Agnieszka Ason
Agnieszka Ason holds Polish and German law degrees and specialises in energy law andinternational dispute resolution. She has a particular expertise in gas pricing disputes. Having started
her career at the Berlin Institute for Energy Law led by Professor Dr. Dr. Dres. h.c. Franz Jürgen
Säcker, and worked on complex transactions and disputes in European and Asian natural gas
markets, Agnieszka currently teaches energy law and international arbitration at the London School of
Economics, Technische Universität Berlin, Freie Universität Berlin, and Queen Mary University of
London. A native Polish speaker, Agnieszka is fluent in English, German, and Russian, and has aworking knowledge of Ukrainian.

ii

Contents
Preface ................................................................................................................................................... ii
Contents ................................................................................................................................................ iii
Introduction ........................................................................................................................................... 1
1. Asian LNG price reviews .................................................................................................................. 1
1.1 Overview ....................................................................................................................................... 1
Chronology of Asian LNG price reviews .......................................................................................... 1
Price reviews in the key Asian LNG importing markets ................................................................... 2
Japan ........................................................................................................................................... 2
China ........................................................................................................................................... 2
South Korea ................................................................................................................................ 3
India ............................................................................................................................................. 4
Taiwan ......................................................................................................................................... 4
Outlook ............................................................................................................................................. 4
1.2 Key features of Asian LNG price reviews ..................................................................................... 5
Price review clauses ........................................................................................................................ 5
Conditions for price review .............................................................................................................. 6
Price review process ........................................................................................................................ 7
Negotiations ................................................................................................................................ 7
Three options in the case of failure to reach an agreement ....................................................... 8
The ‘fourth option’ in Asian LNG contracts: uncertainty as to the next step ............................... 8
Price review methodology ................................................................................................................ 8
1.3 Outcomes of price reviews ............................................................................................................ 9
2. The role of arbitration in Asian LNG pricing disputes .................................................................. 9
2.1 Arbitration as the preferred dispute resolution mechanism .......................................................... 9
Key features of arbitration ................................................................................................................ 9
Gas price review arbitration ........................................................................................................... 10
2.2 Arbitration of LNG disputes ......................................................................................................... 11
Arbitration in LNG contracts in general .......................................................................................... 11
Arbitration in Asian LNG contracts ................................................................................................. 12
2.3 The potential for LNG price review arbitrations in Asia ............................................................... 13
Changing nature of the LNG sector ............................................................................................... 13
Increasing sophistication of price review clauses .......................................................................... 14
Expansion of arbitration in Asia ..................................................................................................... 14
Innovations in arbitration ................................................................................................................ 15
Lessons from European gas price reviews .................................................................................... 15
3. Key considerations in arbitration of Asian LNG pricing disputes ............................................. 15
3.1 Arbitration clause ........................................................................................................................ 15
Availability of arbitration route in existing contracts ....................................................................... 15
Careful drafting in new contracts ................................................................................................... 16
3.2 The powers of arbitrators ............................................................................................................ 16
Limits to the decision-making process of arbitrators ..................................................................... 17
Limits to structural changes to the price formula ........................................................................... 17
Quantitative limits to the revision of the contract price .................................................................. 17
3.3 The role of experts ...................................................................................................................... 17
An idea: post-arbitration expert determination ............................................................................... 18
4. Summary and conclusions ............................................................................................................ 18
Glossary ............................................................................................................................................... 20
Bibliography ........................................................................................................................................ 21iii

Introduction
A few years ago, the title of this paper would have been greeted with general disbelief. Until recently,
Asian LNG contract issues, including price adjustments, have been resolved by negotiation, with few
formal price review clauses, and certainly no price review arbitrations. These two, largely European
phenomena to date, are only now spilling over into Asia. As this paper argues, the role of LNG pricereviews and arbitrations in the Pacific Basin is likely to increase in the coming years. The main
objective of this paper is to explore the Asian LNG price review landscape and to assess the potentialof arbitration as a method of resolving pricing disputes in Asian LNG contracts. The paper is divided
into four parts. Part 1 focuses on price reviews in Asian LNG importing markets and explores theirscale, geographic reach, outcomes, and key features. Part 2 discusses the role of arbitration in LNG
pricing disputes in Asia. Part 3 highlights some key considerations in Asian LNG pricing arbitrations.
Part 4 concludes with a summary.

1. Asian LNG price reviews
1.1 Overview
Chronology of Asian LNG price reviews
The history of Asian LNG price review clauses is relatively short. In contrast to continental Europe,
where long-term gas contracts ‘always’ included price review clauses (often referred to as ‘pricereopeners’), these clauses did not feature in most Asian long-term LNG contracts until the 1990s(Stern, 2016a, 488). In the absence of the most straightforward contractual basis for a price review, aparty asking to reopen an oil-linked contract price for LNG had to resort to alternative options of acontractual or non-contractual nature. Other contractual provisions, including hardship clauses, could
be used as a basis for renegotiation of a contract price. Industry evidence1 further suggests that someearlier contracts contained ‘meet and discuss’ provisions, being essentially prototypes of modern
price review clauses.2 ‘Outside a contract’, a party determined to revise a contract price could exert
commercial pressure to bring the other party to the negotiation table. 3 Importantly, these alternative
options were less certain than a price review process triggered on the basis of a price review clause
which serves the specific purpose of adapting the contract price to market changes. 4 The ‘limited
room for manoeuvre’ (Stern, 2016b, 1) resulting from the lack of price review clauses in earlier Asian
contracts naturally limited the number of price reviews pursued in Asian LNG markets.
Price reviews touch upon the most sensitive commercial interests and their details are generally
shrouded in confidentiality. The Asian LNG context is no exception. The evidence of early pricerenegotiations, in particular, is very scarce. Industry input suggests that some buyers and sellers to
Asian LNG contracts (for supplies to Japan and South Korea at that time) 5 sought price revisions in

The terms ‘industry evidence’, ‘industry input’, and ‘author’s research’, are used interchangeably and refer to interviews with
LNG industry participants conducted in preparation of this paper.
2
For example, an Asian LNG Sales and Purchase Agreement (SPA), concluded in 1960s for deliveries of Alaskan LNG to
Japan, contained the following ‘meet and discuss’ provision: ‘if in the future another [LNG] project is placed into operation to
supply Japan ... under similar conditions such as volume, distance, liquefaction, and ocean transportation techniques, contract
term and so forth, Sellers will hold a discussion with Buyers concerning the price ... and shall endeavor to find a solution
satisfactory to all parties concerned.’ The quote is taken from Weems (2006, 2), emphasis added.
3
Commercial pressure can take a variety of forms in long-term contracts. For example, as argued by Lau (2014, 5), a party‘may be able to exert commercial pressure by referring to other existing agreements between the parties, or to future business
opportunities.’ Alternatively, a party may threaten to walk away from the contract if no agreement on price revision can bereached.
4
For a discussion of challenges of alternative contractual avenues for a price review request see Christie and Ogut (2017).
5
Japan commenced LNG imports in 1969 and South Korea in 1986.
1

1

the 1970s and 1980s, depending on the level of oil prices at a given time period. In the early 1990s,
gas price discussions started between Tokyo Electric Power Company (TEPCO) and Abu Dhabi Gas
Liquefaction Company (ADGAS). The price in the SPA concluded by the parties in 1990 was
reopened on ‘several occasions’, with what, in each case, resulted in lengthy negotiations between
the two companies (Dargin and Flower, 2011, 460). During the buyer’s market in the first years of the
2000s, when the price linked to the Japanese Crude Cocktail (JCC) exceeded the upper limit of$29/bbl in Japanese contracts,6 many ‘price out of range’ negotiations took place (Flower and Liao,
2012, 343), which possibly led to downward revisions of contract prices. But the first ‘wave’ of LNG
price reviews (in relative Asian terms)7 only occurred in the period between 2010 and 2014, whenseveral sellers requested price reviews and secured price increases. Shortly after that, in 2015,
Petronet shocked the market, obtaining a roughly 50 per cent price reduction from RasGas. Since
then, reports of Asian LNG buyers asking to reopen oil-linked prices in long-term LNG contracts
appear regularly.

Price reviews in the key Asian LNG importing markets
Japan
Japan is the world’s leading LNG importing country and, on this basis, it can be assumed that asignificant share of price review discussions in the Asian LNG context involved Japanese buyers.
However, public evidence of these price reviews is very limited, and rarely to be found in industry
briefings or press reports. Corporate materials of Woodside Petroleum refer to ‘Pluto 2014 pricereview’ and suggest that the outcome of price review discussions over the price of supplies from the
Pluto LNG project was in favour of the seller. 8 In 2016, several media outlets pointed to thedetermination of Japanese buyers to renegotiate contractual terms in the aftermath of Petronet’s
success to obtain a considerable price reduction from RasGas. For example, The Economist reported
at that time that JERA was planning to renegotiate contract terms with Qatar. 9 In 2017, a senior
official of Tokyo Gas was quoted as saying that renegotiations with various suppliers were in
progress, ‘including price review.’10 Industry input offers a much broader picture and suggests thatJapanese buyers have triggered, or are intending to pursue, price review discussions with several
sellers from LNG projects in Australia (North West Shelf, Darwin), Russia (Sakhalin), Malaysia (Tiga),
and Indonesia (Tangguh, Bontang).
China
China, which recently overtook South Korea as the world’s second largest LNG importer,11 started
LNG imports only in the early 2000s. 12 In 2001, China National Offshore Oil Corporation (CNOOC)
invited the first bids for the supply of 3.3 mtpa to the Guangdong terminal, requesting a very low slope(in comparison with the other contracts in force at that time) of 5.25 per cent, and an oil price ceilingset at $25/bbl. The Australian North West Shelf project met the conditions requested by CNOOC andwas selected as the preferred bidder. A contract, which was concluded in 2004, for deliveries for aperiod of 25 years did not contain a price reopener clause (Flower and Liao, 2012, 343). Industry
input suggests that it was a deliberate choice to abstain from a price review clause in the first LNG

Some Japanese contracts concluded in the 1990s, stipulated a narrow ‘applicable range’ of oil prices, typically between $1129/bbl, with the buyer and seller agreeing to meet and discuss in good faith in the event that the oil price was outside that
range. See Flower and Liao (2012, 340–343).
7
For a discussion of European waves of price reviews, see Anway and von Mehren (2019).
8
Woodside, 2015 Full-Year Results Briefing, Slide Pack, 17 February 2016, available at the company website, stating (at slide33) that ‘Pluto LNG realised pricing improved when its first price review became effective in Q2 2014.’,https://files.woodside/docs/default-source/investor-documents/quarterly-and-half-yearly-pdfs-and-data-tables/2015/17-02-20162015-full-year-results-briefing-(slide-pack).pdf?sfvrsn=d1439a20_10.
9
http://country.eiu.com/article.aspx?articleid=684182052&Country=Qatar&topic=Economy&subtopic=Forecast&subsubtopic=Po
licy+trends&u=1&pid=561808840&oid=561808840.
10
https://www.reuters.com/article/us-japan-lng-tokyo-gas/japans-tokyo-gas-wants-to-revise-lng-supply-contractsidUSKBN19Y0YH.
11
https://giignl.org/sites/default/files/PUBLIC_AREA/Publications/rapportannuel-2018pdf.pdf.
12
In 2006, the first shipment of LNG to China arrived at a terminal in Guangdong from Australia.
62

contract for deliveries to China. In 2002, CNOOC signed another ‘low-price’ contract for supplies fromthe Tangguh LNG plant in Indonesia, with the price of LNG linked to the JCC 13 and capped at $25/bbl.
14 In 2006, this contract was renegotiated. The oil price cap in the amended contract (which is for 2.6
mtpa and 25 years) was raised to $38/bbl. 15 The first attempt by Indonesia to revise the price under
the amended contract was made in 2008 16 but negotiations, at that time, ‘were going nowhere.’ 17 The
2006 contract is understood to contain a price review clause and allow for a price review every four
years. 18 In 2012, the Indonesian government set up a new working team for price review
discussions.19 These reportedly concluded in June 2014 with an agreement which ‘more than doubled
the price of LNG’, as compared to the price under the 2006 contract. 20 In 2016, China National
Petroleum Corporation (CNPC) announced that it intended to renegotiate ‘the pricing method’ in its
long-term contract for three mtpa with Qatargas. Discussing these plans, the Chairman of CNPC
suggested that the contract contained a price review clause, stating that the company was ‘seeking
proper time window of setting up a price renegotiation mechanism.’21
South Korea
In the past, ‘relatively few price reviews’ took place in the Korean LNG market (Flower and Liao, 2012,353). The exposure of Korean buyers to price review requests rose significantly in 2013 amid
numerous price review requests from sellers. At that time, Petronas sought to revise the price under a20-year contract for two mtpa of supplies from the Tiga LNG plant. Specifically, Petronas requested
an upward revision of the slope to ‘more than 13 per cent from less than 10 per cent.’ 22 The details of
the revised formula are unknown but the ‘Tiga deal’, which was signed as a result of pricediscussions, reportedly tripled the price paid by Korea Gas Corporation (KOGAS). 23 In 2013, KOGAS
received another price review request from Yemen LNG. Corporate materials of Yemen LNG statethat the price review process concerned an SPA concluded by the parties in 2005 for the supply of
2.05 mtpa of LNG to Korea, which contained ‘a Brent based price formula with floor and ceiling and afive-year renegotiation clause.’ Price review discussions were triggered by Yemen LNG in June 2013and concluded in December 2013 with a price increase. 24 At that time, KOGAS was reportedly facing
another price review request for deliveries from the Sakhalin project, 25 and two other Korean buyers,
SK Power and POSCO, were exposed to price review requests for deliveries from Tangguh. 26 In
POSCO’s case, a 20-year contract was linked to the JCC and had an oil price ceiling, 27 and reportedly
contained no terms allowing for a price review. 28 More recently, in February 2018, it was reported that
KOGAS commenced arbitration against the North West Shelf Joint Venture (operated by Woodside
Petroleum). The arbitration relates to a difference over an agreed price renegotiation during a mid-13

https://uk.reuters.com/article/indonesia-gas-china/update-1-indonesia-more-than-doubles-lng-price-at-tangguh-for-2014idUKL4N0PC1BY20140701.
14
https://www.reuters.com/article/cnooc-bp-lng/chinas-cnooc-to-pay-more-for-bp-indonesia-gas-idUSL3N0DR2WG20130510.
15
http://topcoevents.com/topco/industry-news/industry-news/View.aspx?nid=6838.
16
https://www.reuters.com/article/gas-indonesia/indonesia-to-ask-china-for-higher-tangguh-lng-priceidUSJAK21557620080314.
17
https://www.thejakartapost.com/news/2011/11/24/govt-team-review-lng-sales-china.html.
18
https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/010812-indonesia-to-begin-renegotiatingtangguh-lng-price-with-chinas-cnooc-in-jan.
19
https://www.thejakartapost.com/news/2014/07/01/tangguh-lng-price-raised-after-deal.html.
20
https://uk.reuters.com/article/indonesia-gas-china/update-1-indonesia-more-than-doubles-lng-price-at-tangguh-for-2014idUKL4N0PC1BY20140701.
21
https://www.forbes.com/sites/timdaiss/2016/03/11/china-national-petroleum-corp-wants-to-renegotiate-price-of-qatarigas/#5b83b9060f8f.
22
https://www.reuters.com/article/petronas-lng-idUSL3N0JS1WO20131213.
23
https://uk.reuters.com/article/uk-lng-prices-analysis/analysis-lng-producers-seize-upper-hand-in-global-contract-reviewsidUKBREA0K0ZV20140121.
24
http://www.yemenlng.com/ws/en/Articles/ShowArt.aspx?cmd=showone&at=news&artid=000178.
25
https://www.bloomberg.com/news/articles/2013-10-07/sakhalin-energy-said-to-seek-higher-lng-price-in-korea-contract.
26
https://www.thejakartapost.com/news/2014/07/02/after-china-govt-seeks-higher-gas-price-korea.html.
27
POSCO and Subsidiaries, Condensed Consolidated Interim Financial Statements (Unaudited), 30 June 2018, 62, available
for download at http://www.posco.com/homepage/docs/eng6/jsp/s91a0000001i.jsp.
28
https://www.thejakartapost.com/news/2014/07/02/after-china-govt-seeks-higher-gas-price-korea.html.

3term supply contract which ended in 2016, and is widely understood to be the first-ever publicly
known price review arbitration concerning an Asian LNG contract. 29
India
India, the world’s fourth largest LNG importing market and one of the fastest growing Asian LNG
markets, has seen three publicly known LNG price reviews to date. As noted above, in 2015, Petronet
secured a price reduction of around 50 per cent from RasGas. Specifically, price renegotiations
concerned a 25-year contract for 7.5 mtpa of LNG. They reportedly commenced after Petronet lifted
only 68 per cent of the contracted annual amount of LNG, 30 and ultimately changed the priceindexation from JCC to Brent, and added a fixed component (‘constant’) to the price formula. 31 It is
understood that, as part of the deal, RasGas agreed to waive the $1 billion penalty under the take-orpay clause,32 and that the contract between Petronet and RasGas ‘did not even allow for a pricereview’ (Van Geuns, 2016, 2). The second such renegotiation for Petronet was the 20-year
agreement with ExxonMobil for 1.44 mtpa. In 2017, the parties reportedly agreed to reduce the cost of
LNG from the Gorgon project, changing the price formula from 14.5 per cent of the JCC to 13.9 percent of Brent.33 In 2018, GAIL renegotiated with Gazprom the terms of a 20-year deal to import 2.5
mtpa, securing a reduction of the contract price. Price indexation was reportedly changed from a ninemonth JCC to a three month Brent linkage,34 and the slope lowered.35
TaiwanTaiwan commenced LNG imports in 1991, and has seen ‘relatively few price reviews’ to date (Flower
and Liao, 2012, 353). In particular, there is no evidence of recent LNG price reviews involving buyers
from Taiwan which, according to the government’s website, currently has four long-term LNG importcontracts with Qatar, Malaysia, Indonesia and Papua New Guinea, all of which are linked to the JCC
or Indonesian Crude Price (ICP).36

Outlook
Structural changes in Asian LNG markets, including a gradual move towards liberalization as well as
global changes to the LNG trade reflected in an increasing flexibility of contracts, and availability of
uncontracted cargos, speak in favour of a growing role of price reviews in Asia. 37 Under current
market conditions, and in the immediate future, buyers are most likely to request price reviews,
especially if the gap between Asian spot and long-term LNG prices widens, and oil-linked contracts
become untenable. Contracts concluded in the 2000s, which accepted ‘ever-closer indexation of LNG
to crude oil prices’ (Stern, 2016b, 1) are most likely to become subject to price reviews in the coming
years.
Importantly, as evidenced by the example of successful price reductions secured by Indian buyers,
price reviews are not the preserve of the ‘Old Asia’. Rather, buyers in the emerging LNG markets withthe strongest long-term prospects for LNG growth are likely to be in the strongest position in future
price renegotiations. Some signs of prospective price reviews come from Pakistan, which started LNG

29https://www.lngworldnews.com/report-kogas-in-arbitration-with-australias-north-west-shelf-lng-project/;https://globalarbitrationreview.com/article/1159042/korean-buyer-brings-gas-pricing-claim-against-australian-supplier.
30
https://www.financialexpress.com/economy/qatars-rasgas-to-waive-1-bn-penalty-on-petronet-lng-ltd-for-lower-gasofftake/169431/.
31
https://economictimes.indiatimes.com/industry/energy/oil-gas/qatar-scraps-floor-cap-in-gas-price-formula-withindia/articleshow/50424196.cms.
32
Petronet agreed to buy the quantities it did not take in 2015 during the remainder of the contract period.
33
https://www.bloomberg.com/news/articles/2017-09-11/india-swaps-cheaper-lng-for-higher-volumes-in-2nd-reworked-deal.
34
https://tass.ru/tek/4880710.
35
http://timesofindia.indiatimes.com/articleshow/64450442.cms?utm_source=contentofinterest&utm_medium=text&utm_campai
gn=cppst.
36
https://www.moeaboe.gov.tw/ECW/english/content/Content.aspx?menu_id=1693.
37
See Trimble (2018, 437), who argues that, in the future, ‘Far East LNG buyers will be buying on a very different basis fromthe past’ and further notes that there ‘will probably be a greater use of shorter term contracts and spot cargo purchases and thebuyers may increasingly trade surplus volumes rather than just being solely a purchaser of LNG.’

4

imports only in 2015, and, since then, has seen an ‘ongoing acceleration in LNG imports’ (Arif, 2017,4). In October 2018, the Competition Commission of Pakistan advised domestic LNG importers to
renegotiate their existing long-term contracts (and to revise their LNG supply negotiation strategies
going forward). In particular, the competition authority warned the buyers against oil price indexationand ‘invited’ them to consider ‘alternative pricing indexations like NBP, Henry Hub and JKM.’ 38
Pakistan has currently oil-linked supply contracts for more than 10 mtpa with Qatargas, Eni, Shell,
and Gunvor. The largest volume contract with Qatargas for 3.75 mtpa, which is linked to Brent (withthe slope set at 13.37 per cent, and no oil price ceiling), 39 is reportedly already subject to price review
discussions, which started in January 2019 with a meeting of high-level state officials from bothcountries in Qatar. 40 Looking further into the ‘New Asia’, Thailand, another rapidly growing LNG
market, (which is reportedly committed to booking as much as 70 per cent of its LNG imports on longterm contracts with the remaining 30 per cent coming from the spot market), 41 as well other emerging
LNG markets which base their import strategy on long-term contracts, are also likely to see LNG pricereviews in the future.

1.2 Key features of Asian LNG price reviews
Price review clauses
To recall, a price review clause offers parties to an SPA the most straightforward option to request arevision of the contract price. In European contracts, a price review clause is likely to point to a‘significant change of economic circumstances’ in a particular market (being most commonly thebuyer’s market),42 and reads along the following lines:
If the economic circumstances in the country of the Buyer, which are beyond the controlof the Parties, should change significantly compared to what is reflected in the prevailing
price provisions …, then each Party shall be entitled to an adjustment of the priceprovisions …, reflecting such changes, in particular the value of Natural Gas in the end
user market of the buyer as such value can be obtained by a prudent and efficient gas
company…43
Asian LNG contracts finalized in recent years typically contain price review clauses (Stern, 2016a,
488). However, as evidenced by CNOOC’s contract for supplies from the North West Shelf, even the
newer contracts may lack price reopeners. At the same time, it is not uncommon to see price review
clauses containing major omissions, contradictions, or other drafting flaws, which render them invalid
or unworkable. In short, the availability of an enforceable price review clause in an Asian LNG
contract is far from self-evident.
Contractual provisions providing for price reviews are typically strictly confidential and there are no
publicly available arbitral awards or court judgments concerning Asian LNG contracts which could
offer knowledge of their contents. There is, however, one relevant example of an Asian LNG pricereview clause in the public domain which (rather unusually) can be read directly from a contract. This
example is set out in a recent long-term SPA between Qatargas and Pakistan State Oil Company

38

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/112218-analysis-pakistan-warns-lng-importersagainst-oil-linked-contracts.
39
https://nation.com.pk/16-Jan-2019/renegotiating-the-qatar-deal.
40
http://interfaxenergy.com/gasdaily/article/33872/pakistan-seeks-lower-cost-lng-from-qatar.
41
https://www.lngworldnews.com/thailand-to-focus-on-securing-long-term-lng-supply-deals/.
42‘Troll contracts’ (that is, contracts for deliveries of gas from Troll gas field in Norway), in particular, refer to the buyer’s market.
Some other contracts take a wider market (regional or international) as a reference market. For example, an arbitral tribunal in
ICC (International Chamber of Commerce) Case No. 15051 found that ‘the [contract] did not follow the “Troll philosophy” andthus did not exclusively focus on the purchaser market, but on elements of the international energy market.’ (emphasis added).
43
Excerpt from a price review clause in ICC Case No. 9812.

5

(PSO) which is freely accessible on the PSO’s website. 44 The price review clause in that contract
reads as follows:
15.2 Contract Price Review
15.2.1 A Party may give a notice (“Price Review Notice”) to the other Party to renegotiate
the Contract Price no earlier than [redacted].
15.2.2 Following the issue of the Price Review Notice, the Parties shall meet in good faithand discuss the matter with a view to agreeing what Price Adjustment (if any) is required.
15.2.3 If the Parties agree upon such matters, they shall amend the Contract Price toreflect the revisions (if any) so agreed. Such revised Contract Price shall apply from the
Review Date pursuant to Clause 15.2.5 until the end of the Supply Period and neither
Party is entitled to give a further Price Review Notice to the other Party.
15.2.4 [redacted]
15.2.5 Any Price Adjustment which is agreed by the Parties shall take effect in respect ofall deliveries of LNG under this Agreement for which the Completion of Unloading falls on
or after the date of the Price Review Notice (the “Review Date”). Until any such Price
Adjustment has been agreed, the Contract Price shall be determined on a provisional
basis under the formula prevailing prior to the Price Adjustment (…).
15.2.6 This Agreement and, in particular, the rights and obligations of the Parties,
including, without limitation, the obligations of the Seller to sell and deliver and theobligations of the Buyer to take and/or pay for LNG at the Contract Price, shall remain in
full force notwithstanding that the Parties have not reached agreement on a Price
Adjustment, unless and until terminated in accordance with Clause 15.2.4 or Clause 24.
This example of a price review clause will be frequently referred to in the discussion below.

Conditions for price review
Price reviews in long-term Asian LNG contracts can be typically triggered after a set number of years
from the date of first delivery, and at regular intervals thereafter (Flower and Liao, 2012, 353). Industry
evidence suggests that most Asian LNG contracts from the 1990s provided for a price revision atintervals in the range of five to ten years. Modern contracts tend to stipulate shorter price review
periods, typically of four or five years. This, potentially, signals the gradual movement towards
narrower price review intervals as seen in European contracts. 45 Nonetheless, price review clauses in
Asian LNG contracts still very rarely stipulate that the price review can be requested outside theregular price review periods, or ‘at any time’, subject to the occurrence of some specified
circumstances.46 The scarce availability of non-periodical reviews necessarily constrains the parties intheir attempts to revise the price, essentially forcing them to await the next time window to submit
their request. Moreover, some Asian LNG contracts expressly limit the number of price revisions
throughout the life of the contract, in some cases, to a one-off revision of the contract price.47
Grounds for price review in Asian LNG contracts are generally very limited. Most importantly, they are
unlikely to include a ‘significant change in economic circumstances in the buyer’s market’ (as seen
most commonly in European contracts). Although some Asian price review clauses refer to ‘changes
in economic circumstances’, as such, these are either put in a broader geographic context than thebuyer’s market (and need to occur, for example, ‘in Asia-Pacific’), or remain detached from any

44Long-term SPA between Qatar Liquefied Company Limited (2) and Pakistan State Oil Company Limited, 8 February 2016,
available at https://psopk.com/files/pdf/QG-PSOredactionofSPA051016.pdf (execution copy).
45
In European contracts, the most usual price review period is three years. See Stern (2016a), 489.
46
Author’s research.
47
See Qatargas – PSO SPA, Clause 15.2.3 (stating that, if the parties agree on price adjustment, ‘neither Party is entitled togive a further Price Review Notice to the other Party.’).

6

particular market.48 Rather than on buyer’s market conditions, Asian price reopeners tend to focus oncomparison with the current import prices, or prices in the new long-term LNG contracts concluded ina specific geographic region (Davis, 2014, 32).
Other types of triggers for price reviews are, of course, feasible in Asian LNG contracts but it has
been suggested that purchasers in key LNG importing markets are at present ‘likely to be limited intheir options to demand price reviews unless a demonstration can be made that the pricing is
unreasonably high in comparison to other suppliers or contracts.’ 49
Upon first impression, the general lack of reference to buyer’s market conditions in price review
clauses in Asian LNG contracts seems striking. However, specifically in the Asian LNG context, it isunsurprising, and clearly derives from the historical capability of Asian buyers (not infrequently statemonopolies) to pass through price increases to their customers. This is likely to change in the future,especially considering that liberalization of Asian LNG markets will inevitably mean that the buyers will
operate in a more competitive environment restraining their ability to pass through the costs of LNG
and maintain profitability at the expense of end-users. Asian buyers can, therefore, be expected tobuild protection against price increases into renegotiated or newly drafted price review clauses.
Accordingly, downstream market conditions are likely to become more relevant in future LNG pricereviews in Asia.

Price review process
Negotiations
Negotiations, in the Asian context often referred to as ‘good faith discussions’, are typically the firststep in the price review process. The contractual basis for good faith discussions is likely to read in an
Asian LNG contract along the following lines:… if Seller or Buyer desires a review of the prices set out in this Agreement due to achange in relevant circumstances resulting in such prices being significantly
disadvantageous to either Seller or Buyer compared with the prices for other LNG soldinto Japan on similar terms to this Agreement, then ... Buyer and Seller shall meet anddiscuss in good faith to review such prices.50
Typically, gas price review negotiations are subject to a specific deadline (for example, 120 days insome European contracts). However, this is not always the case with Asian contracts, whichsometimes do not stipulate any negotiation period. 51 The length of negotiations can therefore prove
uncertain. Most good faith discussions involving Asian stakeholders have been protracted and sometook many years to resolve, as exemplified by the anecdotal evidence of the ‘price out of range’
discussions with Japanese buyers triggered in the early 2000s which had not been concluded ‘by thetime the buyer’s market gave way to the seller’s market’ (Flower and Liao, 2012, 343). Contemporarygas pricing discussions in Asia remain widely perceived as lengthy, especially if compared totimelines experienced in European gas price reviews.
Negotiations are typically purely commercial in nature and limited to the parties to the contract.
However, specifically in Asia, they can be expected to touch upon sensitive political interests andinvolve external actors, including government officials. For example, price discussions concerning theTangguh LNG project (which were announced by the Indonesian President on Twitter)52 reportedly
included delegates from the Indonesian energy regulator and energy and finance ministries. 53 The
involvement of governments in price renegotiations can take a variety of forms. Although there is no

Author’s research.
Oghigian, Henneberry, and Jones (2017, 4).
50
Example from Paul Griffin, quoted in Leggatt (2018, 4), emphasis added. See also, Qatargas – PSO SPA, Clause 15.2.2.
51
As exemplified by the price review clause in the Qatargas – PSO SPA.
52
In 2013, the Indonesian President Susilo Bambang Yudhoyono tweeted (in Indonesian): ‘China's leaders have agreed overmy proposal to renegotiate Tangguh price in a bid to allow Indonesia to get higher value.’53
http://topcoevents.com/topco/industry-news/industry-news/View.aspx?nid=6838.
48
49

7

evidence that Asian LNG contracts would require the outcome of a price review to be formallyapproved by governmental authorities, this requirement can be present in national laws, 54 or bereflected in the practical need to obtain a blessing from one or two governments. All these factors canpotentially lead to additional delays in the price review process.
Three options in the case of failure to reach an agreement
In general, if the parties fail to reach an agreement within the negotiation period, a price review clause
will provide for one of three options: (i) the contract will continue unchanged; (ii) either party will havethe right to terminate the contract; and (iii) the dispute will be referred to an external party (Griffin andvan Eupen, 2014, 148). The availability of these options in Asian LNG contracts is briefly discussed
in turn below.
First, some Asian LNG contracts make it clear that if no agreement is reached, the contract ‘shallremain in full force’ notwithstanding that the parties failed to agree on price adjustment. 55 Thisessentially means that the gas supply contract will continue to operate unamended even if the parties
remain misaligned as to the contract price.
Second, some Asian LNG contracts offer both parties the right to terminate the contract if they areunable to agree on price adjustment. For example, the SPA between Qatargas and PSO provides thatthe ‘Agreement … shall remain in full force notwithstanding that the Parties have not reachedagreement on a Price Adjustment, unless and until terminated in accordance with Clause 15.2.4....’56
The termination provision in question, forming an integral part of the price review clause, has beenredacted, and remains confidential. On the basis of comparison with other contracts, it is likely to offer
the right of termination to either party, upon giving notice to the other party, in the case of the failure of
the parties to reach an agreement on price adjustment within a specified period of time. Clearly, theoption of contract termination is a rare feature of Asian LNG price review clauses which, as industry
input suggests, is likely to be limited to the most recent contracts.
The third alternative in the event of the parties’ failure to reach an agreement in negotiations is theright of either party to submit the dispute to an external dispute settlement mechanism. This will be
the case with most European contracts which, as discussed below, routinely refer the parties toarbitration. Asian LNG contracts do not follow the European pattern of a strong preference forarbitration. Strikingly, as industry input suggests, many of them do not refer the parties to any thirdparty dispute settlement mechanism.
The ‘fourth option’ in Asian LNG contracts: uncertainty as to the next step
Instead of providing for any of the three standard alternatives, some Asian LNG contracts take a
distinct approach and remain silent on the issue of available options in the event of failed pricenegotiations. As suggested by Davis (2014, 32), the question of the next steps can prove to be such asensitive matter in contract negotiations in Asia that parties, ‘consciously or unconsciously’, leave it
open. This solution, essentially exposing the parties to uncertainty as to the next step in the pricereview process, forms a prevalent feature of the older Asian price review clauses and is notuncommon in newer agreements.57

Price review methodology
A limited number of Asian LNG contracts offer detailed guidance as to the factors which should betaken into account in price adjustment. These include a ‘market parity’ clause which seeks to ensurethat the price will not be out of line with a particular comparator. For example, if a comparison is madeagainst current imports to Japan, the price review clause may stipulate that the revised price ‘shall be

54This can be inferred from the need to obtain state approval for the new or renegotiated contracts in some jurisdictions.
Author’s research.
56
Qatargas – PSO SPA, Clause 15.2.6 (emphasis added).
57
Author’s research.
55

8based on the pricing of similar sales into Japan’ (Davis, 2014, 32). In these cases, price discussions
will be informed by the need to achieve a specific result.
However, most price review clauses in Asian LNG contracts are general in nature and say very little(Stern, 2016a, 489), if anything, about the factors which should be taken into account in a pricereview. Industry evidence suggests that some Asian price reopeners refer to ‘various factors’ orbroader economic considerations (like ‘levels and trends in the price of oil and gas in Asia-Pacificregion’) which should guide price review discussions. In addition, or in the alternative, some Asian
LNG contracts require that the price adjustment shall be ‘appropriate’, ‘reasonable’, ‘equitable’, ‘fair
and justified’, or apply a combination of these, or similar, thresholds. Other price review clauses do
not specify any instructions or expectations as to the price review and merely stipulate, for example,
that ‘the parties shall … discuss the matter with a view to agreeing what Price Adjustment (if any) is
required.’58

1.3 Outcomes of price reviews
Asian LNG price reviews resulted in both upward and downward price revisions, which in some cases
halved or tripled the prices, and often significantly altered the original pricing arrangement. However,reported price reviews have not involved wholesale structural changes to pricing mechanisms. In
particular, there is no evidence of any Asian LNG contract price review, which would result in thedeparture (even partial) from oil indexation. 59 Rather, LNG Asian price reviews were limited to more orless extensive changes to specific components of a given oil-linked formula. Changes to the slope
were at the heart of most price revisions involving Asian stakeholders, especially in the 2013-2014
wave of price reviews which led to several upward slope adjustments. In comparison, revisions of theconstant were less frequent, but are not uncommon. In addition, or in the alternative, some pricereviews resulted in changes to oil price floors/caps, or oil indices (mainly abandoning the link to JCC
in favour of Brent).
Notably, all reported outcomes of Asian LNG price reviews were achieved in negotiations, which, inthe language of European price revisions, could be described as ‘at the pre-arbitration stage.’ In the
Asian context, the narrative has been different, and the claim filed by KOGAS remains the only
publicly known example of an Asian gas price review arbitration to date. There is, however, some
expectation that ‘others may follow’ 60, or that Asia will become ‘the next major battleground’ in gas
price review arbitration (Anway and von Mehren, 2019, 207).

2. The role of arbitration in Asian LNG pricing disputes
2.1 Arbitration as the preferred dispute resolution mechanism
Key features of arbitration
Arbitration is the preferred dispute resolution mechanism in international commercial contracts.61 Asan alternative to litigation before national courts, arbitration offers parties remarkable flexibility, whichis reflected in a variety of procedural choices. In particular, the parties can choose the decision
makers acting as private judges (‘arbitrators’), a neutral place (‘seat’) of arbitration, the most suitable
arbitral rules, the involvement of the administering institution, and the language of arbitration.
Furthermore, the parties can determine many other aspects of arbitration, including the desired
timeframe, structure, and level of confidentiality of arbitral proceedings. In essence, the users ofarbitration can tailor the arbitral process to their needs.

Clause 15.2.2 of the Qatargas – PSO SPA (emphasis added).
Although some Asian LNG contracts use hybrid pricing or gas price indexation, these alternative formulae were introduced to
newly signed or amended contracts, and not as a result of price reviews triggered on the basis of existing contracts.
60
https://www.reuters.com/article/us-asia-lng-arbitration/as-kogas-goes-into-lng-arbitration-others-may-followidUSKBN1FX0MK.
61
Anecdotal evidence suggests that 90 per cent of international commercial contracts contain an arbitration clause.
58
59

9

The outcome of arbitration (‘arbitral award’) cannot be disregarded by the losing party. It is binding
and can be enforced across the globe in all countries which have ratified the New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards. 62 The options of recourse against anarbitral award are very limited, and typically do not include an appeal. In most jurisdictions, anunfavourable award can be challenged before national courts on narrowly defined grounds. In theabsence of violations of due process or mandatory rules pertaining to public policy (for example,
competition laws), the prospects of a successful challenge are very low. In the vast majority of cases,
arbitral awards are final and voluntarily complied with.

Gas price review arbitration
Arbitration is the preferred method for resolving gas pricing disputes in European contracts. Especiallypost-2008, European price review arbitrations expanded and become ‘relatively common events inrelation to both pipeline and LNG contracts’ (Stern, 2016a, 489).
Parties to gas supply agreements favour arbitration for pricing disputes due to its flexibility, the fullprivacy of the process and confidentiality of the outcome, which they typically request, considering thesensitive nature of pricing arrangements and market information in gas price reviews. As complex andhigh-stakes disputes, gas price review arbitrations are typically heard by three arbitrators (forming an‘arbitral tribunal’), rather than by a sole arbitrator. There are several different methods of appointing
an arbitral tribunal but the parties typically choose arbitrators on their own on the basis of careful due
diligence of the prior experience of a particular candidate. The two party-appointed arbitrators thenchoose the third arbitrator (‘chair’) who presides over the arbitration. In the alternative, the parties
sometimes seek assistance of an arbitral institution which will act as an appointing authority. The roleof an arbitral institution in arbitral proceedings depends on the preferences of the parties. Some wish
to have their proceedings administered by a particular institution, for example, London Court ofInternational Arbitration (LCIA). Others opt for ad hoc arbitration, which they conduct on their own,
typically in accordance with Arbitration Rules of the United Nations Commission on International
Trade Law (UNCITRAL), which are suited for non-institutional proceedings.
European price review arbitrations to date have been both institutional and ad hoc, and conductedunder various arbitral rules, including the UNCITRAL Rules, LCIA Rules, ICC Rules, or the Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). They were seated in different
locations, including Stockholm, London, Geneva, and Paris. The following arbitration clause, set out inthe gas supply contract between Naftogaz and Gazprom, is reflective of some choices which can bemade in a gas price review arbitration:…The Parties shall seek to resolve between themselves all disputes and controversies
relating to the interpretation and application of this Contract by means of negotiations.
Should the Parties fail to reach a mutually acceptable solution within 30 days upon theoccurrence of any dispute or controversy, any dispute, controversy or claim in connection
with the present Contract either its breach, termination or invalidity shall be finallyresolved by arbitration in accordance with the Rules of the Arbitration Institute of theStockholm Chamber of Commerce. The Arbitral Tribunal shall consist of three Arbitrators.
The Arbitration shall be held in Stockholm, Sweden. The language of the arbitration
proceedings shall be Russian. The arbitral award shall be final and binding on both
Parties…63

62

As of March 2019, 159 states are Contracting Parties to the New York Convention.
Contract between Naftogaz of Ukraine and Gazprom no. KP for the purchase and sale of natural gas for the period 20092019, 19 January 2009. Excerpt from the arbitration clause set out at Article 8, as reproduced by the tribunal in SCC arbitration
no. V2014/078/080, Final Award, 22 December 2017, at para. 5, which is available at
http://www.naftogaz.com/files/media/Final%20Award%20Redacted.pdf (emphasis added).
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Arbitration can be either the only method of dispute resolution in a contract, or be preceded by a prearbitration step, for example, negotiations. The latter option is most common in European gas supply
contracts and allows the parties to first explore the informal negotiation route before submitting the
dispute to arbitration. Theoretically, the choice of the parties is not limited to these two tiers, and thearbitration clause could provide for more steps in the dispute resolution process. For example, assuggested by Griffin and van Eupen (2014, 154), mediation could be inserted as an extra step
between negotiations and arbitration, which could offer additional encouragement to the parties toreach agreement without the need to resort to adversarial proceedings. At the same time, it is unlikelythat any less adversarial proceedings than arbitration, like mediation, conciliation, or expert
determination, could be successfully applied as a full alternative to arbitration. Mediation andconciliation both require involvement of a third-party (mediator/conciliator) but, unlike arbitration andexpert determination, do not produce a final and binding outcome. Expert determination is a closer
alternative to arbitration, but is widely seen as a less compelling option for reasons including thatparties may not be comfortable leaving a decision on the gas price review to an expert ‘without any
legal background.’64

2.2 Arbitration of LNG disputes
Arbitration in LNG contracts in general
The advantages of arbitration were recognized early by the LNG industry. In the 1960s, arbitration,rather than litigation, ‘was already the norm’ in LNG contracts (Weems, 2006, 1). For example, the
LNG SPA between Distrigas and Sonatrach concluded in 1976 contained the following arbitration
clause:Any dispute between the parties hereto relating to the construction or the performance ofthe terms of this agreement shall be settled by arbitration in Geneva, Switzerland, [under]
the rules of conciliation and arbitration of the International Chamber of Commerce by one
or more arbitrators appointed in accordance with such rules. The arbitration award shallbe final and without any appeal being open. The parties shall perform the arbitration
award without any exception or reservation. (…) 65
Over the past fifty years of LNG trade, contracts systematically included arbitration clauses. 66 In
recent years, the LNG industry has become ‘increasingly litigious’ and that ‘shows no sign of receding’(Baily and Lidgate, 2017, 320). Disputes submitted to arbitration covered a broad range of issues
including pricing, supply failures, construction delays, tariffs, storage, shipping, and claims brought byinvestors against states.67 To date, the majority of disputes are related to the determination of theprice of LNG in long-term contracts (Bohmer, 2015, 486).
Only a few LNG price review arbitrations are in the public domain. The best known example is the
Atlantic LNG arbitration which was confidential but became publicly known in 2008 through postarbitration judicial proceedings before a US court. 68 The arbitration concerned a price review triggeredby Atlantic LNG on the basis of a 20-year gas supply agreement between Atlantic LNG and Gas
Natural, and was seated in New York and conducted under UNCITRAL Rules. The case is discussed
in detail by Griffin (2017, 114–116). More recently, Edison prevailed in an arbitration conducted under
ICC Rules against RasGas in relation to a price review under a 25-year SPA executed between the

64

Terceño, Phua, and Stennett, 2018, 13.
Agreement for the Sale and Purchase of Natural Gas between Sonatrach and Distrigas Corporation, 13 April 1976, available
at http://www.secinfo.com/dsvRx.bmw.a.htm#1stPage, emphasis added.
66
For an overview of contractual practice over the last decades see Weems (2006).
67
For the most recent example of an investment treaty arbitration concerning the LNG sector, see Unión Fenosa Gas, S.A. v
Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, 31 August 2018. https://www.italaw.com/sites/default/files/casedocuments/italaw10061.pdf.
68
Gas Natural Aprovisionamientos v Atlantic LNG Co. of Trinidad Tobago (2008) WL 4344525 (SDNY 2008).
65

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two companies.69 Other recent examples include LNG price review arbitrations between Edison and
Sonatrach, Edison and Eni, RasGas and Distrigas, and RasGas and Endesa. 70

Arbitration in Asian LNG contracts
Although pricing disputes have traditionally dominated the global LNG disputes portfolio, andEuropean price review arbitrations have been initiated ‘since the early years of the trade’ (Stern andKoyama, 2016, 37), this has not been the case in the Pacific basin. At the same time, industry
evidence strongly suggests that Asian LNG contracts routinely provided for arbitration and that, inpractice, Asian buyers and sellers used arbitration for a variety of non-pricing, mainly infrastructurerelated, disputes in both domestic and international settings. Notably, the first Asian LNG SPA, which
was signed in 1967 for the sale of LNG produced by Phillips and Marathon Oil in Alaska to Tokyo
Electric and Tokyo Gas, stipulated that any disputes will be resolved by ‘arbitration in Tokyo with thearbitrators applying Japanese law.’71 Clearly, there is no general reluctance in the Asian LNG industry
to using arbitration, or any particular preference for another third-party dispute resolution mechanism(like litigation), what could explain the low use of arbitration for Asian LNG pricing disputes. 72 As
evidenced by the European experience, pricing disputes, as contractual disputes, are well suited forarbitration.73 Nevertheless, for some reason, parties to Asian LNG contracts have remained largely
unresponsive to the global tendency in favour of arbitration of price revision claims. This phenomenon
can be explained in a number of ways.
The first, and arguably most important, reason for the lack of price review arbitrations in Asia is alimited number of price review disputes to date which would lend themselves for resolution byarbitration. Considering that the practice of including price review clauses in long-term Asian SPAs
dates back to the 1990s, and most older contracts stipulated price review periods spanning over ten
years, the first opportunities to trigger price reviews on the basis of these clauses emerged only in thelast decade. As discussed below, at least in some of these cases, parties willing to commence
arbitration could have encountered a contractual barrier (like the lack of an arbitration clause)
effectively preventing them from pursuing the arbitration route. In some other cases, the parties could
well have been able to settle their case with no need to pursue any formal dispute resolution
procedure.
The second reason for the lack of widespread use of arbitration for Asian LNG pricing disputes might
be the traditional Asian preference for resolving disputes out of court, ‘in a spirit of mutual
understanding and trust’ (Sullivan, 2017, 185). The Japanese, in particular, are generally seen as‘non-litigious people’, who have ‘an unusual and deeply rooted preference for informal, meditatedsettlement of private disputes and… do not take advantage of the available mechanism for formal
dispute resolution’ (Haley, 1978, 359).
The third consideration which has, potentially, decreased the number of Asian LNG price review
arbitrations to date, is the perception that the commencement of arbitration is detrimental to a longterm business relationship between the parties. The following statement is reflective of this position:‘Maintaining a good relationship between buyer and seller is an important factor in preventing
disputes having to be settled through arbitration’ (Flower and Liao, 2012, 372).
Other reasons include a general impression of some of the drawbacks of gas price review arbitration,
which mainly relies on anecdotal evidence from European cases. Industry input strongly suggests thatthe key criticism in relation to gas price review arbitration is the perceived freedom of arbitrators torewrite the price formula in an uncontrolled manner. In particular, it is widely feared that arbitrators

69

https://globalarbitrationreview.com/article/1031603/edison-awarded-gas-price-discount.
https://www.mcnairchambers.com/client/publications/2013/LNG_PRICE_REVIEW_DISPUTES_.pdf.
71https://www.lexology.com/library/detail.aspx?g=1d775cb2-c99f-4019-b142-214731b8e828.
72
Some other sectors, for example technology or financial sector, have been traditionally reluctant to use arbitration and havefavoured litigation before national courts.
73
Some other types of disputes, and non-contractual disputes in particular, are considered to be less suited for arbitration.
70

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could introduce a novel pricing structure of their own design, or replace the oil link with somealternative index, in the absence of such a request from either party. This largely rests on experiencefrom the Atlantic LNG case where a tribunal applied a dual pricing formula which ‘neither party had
requested and both appear to have argued against’ (Griffin, 2017, 115). Apart from the prospect of
unwanted results in gas pricing disputes, industry evidence highlights some general concerns inrelation to arbitration, including the perceived complexity, excessive length, and cost of arbitralproceedings.

2.3 The potential for LNG price review arbitrations in Asia
The number of LNG pricing arbitrations in Asia is likely to increase. However, this is not due to asimilarity between market transition patterns in Europe and Asia, which would offer a reason tobelieve that the European experience with gas pricing arbitrations may be repeated in an Asian LNG
context in the coming years (as it is often claimed). 74 Rather, LNG pricing arbitrations in Asia can be
expected to follow a distinct path and will originate primarily from future reshuffles to pre-establishedregional market fundamentals, contractual arrangements, and dispute resolution preferences. Fivefactors, in particular, speak in favour of the growing role of arbitration in disputes resulting from the
Asian LNG contracts.

Changing nature of the LNG sector
While the first decades of LNG history where dominated by a limited circle of actors, the global
expansion of LNG trading has opened the industry to many more participants. Although the Asian
LNG industry remains a closely-knit sector, the growing role of emerging international players is likely
to loosen the tight connections, and traditional interdependence, between the most establishedbuyers and sellers. The growing role of international lenders and trading houses, in particular, can be
expected to lead to a greater push towards price review clauses providing for arbitration in the case of
failure of good faith discussions. The arbitration option is likely to be requested by lenders mainly forthe sake of legal certainty, and especially as a means to minimize their exposure to the risk of
protracted pricing negotiations and to secure operational continuity of the contract. For the same
reasons, international trading houses, increasingly acting as buyers and sellers of Asian LNG, arelikely to insist on arbitration, which they otherwise use for a variety of international commercial andinvestment disputes.75
Generally, the growing involvement of players who consider arbitration as an ordinary part of thebusiness may alter the pervasive misconception in the LNG industry that arbitration is detrimental to
the relationship between the parties. As evidenced by experience from the broader oil and gas sector,
even a significant portfolio of pending arbitrations between two companies does not preclude their
new deals, or a good business relationship. 76 Notably, Woodside Petroleum signed a Memorandum ofUnderstanding with KOGAS for the development of the Port Arthur project after KOGAS commenced
arbitration against the North West Shelf Joint Venture. The CEO of Woodside Petroleum stated, atthat time, that the ‘relationship with KOGAS is still a good one … and arbitration is just the final
natural completion point for [the dispute].’77 Arbitration is, indeed, increasingly seen as a natural final
part of the dispute resolution process. Importantly, the decision to file for arbitration does not prevent,or discourage, amicable settlement. Efforts to settle a dispute may well continue in parallel with theSee, for example, Lee (2018), and Terceño, Phua, and Stennett (2018), who point to ‘strong similarities’ between the current
Asian markets and the conditions previously present in European markets that resulted in a wave of price reviews andarbitrations in Europe.
75
Most trading houses which are active in the LNG sector can be expected to have pending arbitrations, including against
states. Some of these cases are in the public domain. For example, recently, Trafigura commenced arbitrations against Beninand Papua New Guinea, and Gunvor against Zambia.
76
In the oil sector in particular, large-scale arbitrations tend to involve repeated players who interchangeably assume roles ofclaimants or respondents (depending on a particular case) and otherwise continue to cooperate.
77
Transcript from an open briefing session held on 14 February 2018 at Woodside Petroleum Ltd., available athttps://files.woodside/docs/default-source/investor-documents/quarterly-and-half-yearly-pdfs-and-data-tables/2017/15-02-20182017-fy-results-and-entitlement-offer---media-teleconference-transcr.pdf?sfvrsn=7c8b9256_11.
74

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arbitration and are, in fact, likely to become more successful as the case unfolds and new evidence isadmitted, and the parties have the opportunity to test the strength of their case.

Increasing sophistication of price review clauses
As soon as Asian LNG buyers and sellers develop a more systematic approach to price reviews, thisis likely to be reflected in the content of price review clauses. To recap, these originally offered little
guidance as to the particularities of the price review. As the practical experience of operating pricereopeners is set to increase, price review clauses will likely receive more attention during contract
negotiations and, inevitably, become more specific in nature. Apart from substantive conditions for the
price review, they will need to address procedural issues. Although negotiations are likely to remain
the starting point for price review discussions, they are unlikely to remain the only avenue for a pricereview request. Instead, the parties to Asian LNG contracts will be able consider several options forprice review processes in their new or amended contracts. Considering that there is no clear patternof preference for any particular third-party dispute resolution mechanism in Asian LNG contracts,
rather than adopting the option of arbitration, parties may choose to terminate the contract.

Expansion of arbitration in Asia
The general Asian attitude towards dispute resolution has significantly changed in the past few years.
Notwithstanding the traditional preference for informal, ‘non-litigious’, methods, arbitration is now
rapidly expanding in Asia. Several countries in the Asia-Pacific, including Singapore, Hong Kong,Japan, and China, have significantly improved their arbitration regulatory frameworks,78 and are hometo thriving arbitral institutions. Singapore, in particular, originally ‘a strong favourite for choice of seatfor oil and gas disputes among parties from China, Indonesia and India’ (Mulcahy, 2015, 286), is
becoming a global dispute resolution hub, and the Singapore International Arbitration Centre (SIAC)
keeps reporting record-breaking caseload statistics.79
In parallel with Asia becoming an attractive venue for international disputes, Asian parties are
increasingly using arbitration. Some cases involving Asian energy companies are in the publicdomain. For example, in 2016, Sinopec filed a $5.5 billion claim against Repsol in Singapore over aninvestment in an ailing North Sea oil joint venture. In 2017, PetroChina (and five other Chinese stateowned oil companies) commenced arbitration over oil and gas fields in Chad against Carlton, a Texas
energy investments firm. At that time, MedcoEnergi, an Indonesian oil company, won a US$24 million
award in a dispute with Singaporean and Australian partners arising out of a joint venture to operate
an oil field off the coast of East Java (Speller, Lim, and Li, 2019, 32). More recently, Korean South
East Power Company filed a $7.5 million arbitration claim under SIAC Rules over the construction of acoal-based power plant, against its Indian partner, which responded to the claim with a $600 million
counterclaim.80
Asian energy companies are also increasingly seeking recourse to arbitration against states. The past
few years have seen investment treaty claims filed by Chinese, Korean, and Malaysian investors.
Notably, Japanese companies are also beginning to take advantage of their rights under international
investment treaties. For example, in July 2018, Itochu Corporation, a Japanese renewable energy
investor, commenced arbitration against Spain under the Energy Charter Treaty, 81 the world’s
preeminent energy sector-specific investment treaty, to which Japan is a party. Potentially, the sameroute of recourse would be available to foreign investors in the Japanese LNG sector, or to Japanese
LNG companies investing in countries which ratified the Energy Charter Treaty, like United Kingdom
or Germany. The Energy Charter Treaty is likely to become more relevant as a basis for investment

78

All Asian LNG countries (with the sole exception of Taiwan) have ratified the New York Convention.
https://globalarbitrationreview.com/article/1181225/siac-releases-latest-case-figures.
80
https://globalarbitrationreview.com/article/1159105/indian-and-east-asian-companies-battle-it-out.
81
https://globalarbitrationreview.com/article/1172045/spain-faces-solar-claim-from-japanese-company.
79

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treaty claims in the LNG sector due to anticipated accession to the Treaty of other key Asian LNG
countries, including China and South Korea.82

Innovations in arbitration
Arbitration, as a dispute resolution process, is constantly improving. Several innovative mechanisms
have been recently introduced to strengthen the time- and cost-efficiency of the arbitral process. For
example, SIAC Rules now offer a mechanism for summary dismissal of unmeritorious claims anddefences83, which, in essence, allows for an early strike-out of submissions manifestly lacking legal
merit. To avoid delays in the decision-making process, arbitral rules increasingly specify time limits forarbitrators to render an award.84 Furthermore, third-party funding in arbitration is rapidly expanding,providing an alternative source of financing for an arbitration claim, and opening the arbitration route
to companies in financial distress. Technological advancement is also taking off in arbitration andoffers a promise of significant cost savings, moving traditional components of the arbitral process tothe digital sphere of ‘e-disclosure, e-case management or e-hearings.’85

Lessons from European gas price reviews
Although it is certain that gas price review arbitrations in Asia will not be an ‘identical replay’ ofEuropean arbitrations,86 the questions in Asian arbitrations will likely be of a similar nature to thosethat arose in Europe. Having the advantage of lessons learned over several decades of gas pricereview arbitrations in Europe, Asian stakeholders are in a privileged position. Certainly, they do notneed to venture into the unknown, and can take advantage of a robust, time-tested, and improved,
dispute resolution mechanism. Even so, the arbitration of Asian LNG price review disputes is unlikely
to be a smooth exercise. Rather, it can be expected to involve both unique, region-specific, hurdles
and some pervasive problems encountered in the earlier price review arbitrations. Ideally, a dispute
resolution strategy will take account of both perspectives well in advance.

3. Key considerations in arbitration of Asian LNG pricing disputes
3.1 Arbitration clause
Availability of arbitration route in existing contracts
Asian LNG supply agreements vary widely in terms of availability of a clear contractual basis forarbitration. Only a limited number of price reopeners will expressly refer the parties to arbitration in theevent of their failure to agree in price review discussions. Rather, the party contemplating arbitration is
likely to face a dilemma as to whether a general arbitration clause set out elsewhere in the SPA andstipulating, for example, that ‘any disputes arising out of this agreement shall be resolved byarbitration,’ can be used as a basis for the price revision arbitration claim. This will largely depend on
the wording of both price review and arbitration clauses, their enforceability, and mutual consistency.
The assessment of these factors will mostly depend on applicable law, which, in Asian LNG contracts,
is ‘inevitably’ English or New York law (Davis, 2014, 31).
For example, if a contract is governed by English law, and the price review clause only obliges theparties to engage in good faith discussions, it may be difficult to persuade the tribunal that it has
jurisdiction. 87 The task would be even more challenging where there is an inherent incompatibility

82

For a discussion of the scope of protection of LNG investments under the Energy Charter Treaty, see Maynard and Ason
(2019).
83
SIAC Arbitration Rules, Rule 29.
84
For example, under SIAC Rules the tribunal needs to submit the award in draft form to the Registrar within 45 days after the
closure of the proceedings (Rule 32.3).
85
https://globalarbitrationreview.com/article/1172902/overcoming-reluctance-to-arbitrate-in-the-tmt-sector.
86
The phrase is taken from van Geuns (2016, 2), who makes this point in relation to Asian, as compared to European, gas
price reviews, noting that ‘both the contractual situation and market are too different for that.’87
For a discussion of agreements to negotiate in good faith under English law, see Leggatt (2018).

15

between dispute resolution provisions in price review and arbitration clauses, the contract does notcontain an arbitration clause, or explicitly provides for another option after failed negotiations, likeexpert determination, or contract termination. In some cases, arbitration would require a separate
agreement between the parties, or amendment to the LNG contract which, practically speaking, could
prove difficult to achieve.
It should be noted that even the, arguably, most straightforward option of a price review clause
explicitly referring the parties to arbitration can prove problematic. Arbitration clauses, sometimes
labelled as ‘champagne clauses’, are often inserted hastily at the end of contract negotiations. Even in
high-stakes deals, they can involve different types of flaws, including ambiguities, contradictions, oromissions, which can later either compromise or slow down the arbitral process. For example, it may
be unclear whether pre-arbitration steps are mandatory, where the arbitration should be seated, or
which law applies to the contract. All these, and similar issues, may result in ancillary disputes.
Notably, the risk of unenforceable or otherwise pathological arbitration clauses can be expected to behigher in the Asian LNG context, where all outcomes were reached through negotiations, and thewording of arbitration clauses has not been tested in practice. Therefore, for some existing contracts,
the decision to pursue an arbitration route is likely to be weighed against the risks of disputes
resulting from an arbitration clause, which would potentially need to be resolved in separate
proceedings before national courts.

Careful drafting in new contracts
Parties contemplating an arbitration option in newly arranged, or renegotiated contracts, are in aposition to eradicate most risks resulting from arbitration clauses well in advance. Careful draftingshould ensure that the conditions for arbitration will be sufficiently clear, flexible, and consistent.
Apart from standard features found in most arbitration clauses (specifying, in the first place, arbitralrules, the seat of arbitration, and the number of arbitrators), the parties to Asian LNG contracts canintroduce some additional provisions to strengthen the efficiency of the process. For example, theparties can agree that the proceedings will be ‘bifurcated’, that is divided into different phases, so thatthe tribunal will first deal with the trigger for price review and only then consider the issue of priceadjustment. Moreover, the parties may specify time limits for arbitrators to render an award, determine
scope of discovery, or agree in advance on the appropriate method of cost allocation. Some further
elements can be contemplated, including expectations towards the number of rounds of written andoral pleadings, location of hearings, or technology support in arbitration. However, all less common
additions to arbitration clauses need to be well-thought-out, so that they simplify, rather thancomplicate, the arbitral process,88 and, most importantly, do not lead to ancillary disputes.

3.2 The powers of arbitrators
In the arbitration clause (or elsewhere), the parties may also specify the powers of arbitrators in a
price review. To recap, the threat that arbitrators could rewrite the price formula in an uncontrolledmanner is the key complaint raised in relation to gas price review arbitrations. This fear possibly rests
on a false assumption that the power of arbitrators originates from some source that is beyond thecontrol of the parties. Notably, in contrast to national judges, arbitrators do not take their mandate
from any external act. Rather, an arbitration clause agreed by the parties is what makes an arbitrator
an arbitrator. Accordingly, the powers of an arbitrator are defined, and can be restrained, by theparties to the contract. The usual recommended strategy to mitigate the risks of unwanted results is‘baseball arbitration’, which essentially reduces the task of arbitrators to a binary choice between two
pricing proposals submitted by the parties. 89 Baseball arbitration found little, if any, acceptance in the88

Logistical issues, in particular, are better suited for a discussion at early stages of arbitration (for example, at the casemanagement conference).
89
See, for example, Tevendale and Morgan (2017, 11), who note that the adoption of baseball arbitration ‘should encourage
the parties to submit more cautious and readily justifiable proposals regarding the meaning of the price review clause and their
proposed revised contract price.’16

industry.90 This is unsurprising. Extreme solutions are not needed to give the parties more control ofthe price review process. A wide variety of other measures can be adopted to limit the discretion of anarbitral tribunal hearing a price review claim. At the same time, it is essential to leave arbitrators
sufficient flexibility, so that overly prescriptive limits do not restrain their ability to provide acommercially sound decision that reflects a market price. Some strategies, which are arguably mostsuited for Asian LNG contracts, are discussed below.

Limits to the decision-making process of arbitrators
First, the parties can instruct arbitrators as to how they should (or should not) arrive at their decision.
To that end, they can specify factors to be considered, or types of evidence to be excluded, in theprice review. They can also offer arbitrators clear guidance as to the acceptable economic result ofprice adjustment. The parties may also set a threshold on retroactivity, and the relevant time
perspective, of the price review and define, for example, to what extent the future impact of changes
to the price should be relevant to a decision on the revision of the contract price.

Limits to structural changes to the price formulaIn addition, or in the alternative, the parties may limit structural changes to their price formula. The
parties to Asian LNG contracts may be inclined to reserve wholesale structural changes to a limited
set of circumstances. For example, they can allow for a complete change of price formation in theevent of a gas hub being created in either the buyer’s market or the region (Stern, 2016a, 490), or
allow for such a change only when a specified level of liquidity of the gas hub is achieved. 91
Furthermore, the parties can restrain the power of arbitrators to change the slope, constant, oil
benchmark, or any other components of the price formula. They may also expressly exclude theapplication of specific indexes like JKM or Henry Hub.

Quantitative limits to the revision of the contract priceParties willing to limit the discretion of arbitrators in the most tangible manner as to the expectedfinancial result, may insert a range by which the tribunal is able to increase or decrease the contract
price. To that end, the contract can refer the arbitrators to either specific high-low figures, or apercentage of an acceptable change, or stipulate transition to a new price formula over a period ofyears (so that, instead of making the price change immediately, arbitrators establish a new basis for
pricing and allow for it to be introduced gradually). These (or other) quantitative limits can feature in
isolation, or accompany the limits concerning the decision-making process of the tribunal or the scopeof allowed structural changes to the price formula.

3.3 The role of experts
Experts play a key role in gas price review arbitrations (Gibson and Moselle, 2014, 118). They
primarily offer input on market fundamentals and pricing mechanisms. Expert evidence in gas pricereview arbitrations often runs into hundreds of pages and legal submissions ‘largely track the expert
evidence’ (Levy, 2019, 213). Experts can be appointed by the parties or the tribunal.
Especially at the price adjustment stage, the tribunal is likely to seek the assistance of a tribunalappointed expert. If the tribunal informs the parties that it requires such assistance, this request will
likely trigger the following process: first, the tribunal will invite the parties to comment on the generalprinciple and specific conditions of appointment of an expert. After the exchange of written submission
on these issues, and in the absence of objections to the appointment of an expert, the tribunal will
suggest that the parties may agree on a list of three potential candidates. The tribunal will either
receive this list or, if not provided, embark on its own search for a suitable candidate. The tribunal willthen interview the candidates and inform the parties about the selection, offering them an opportunity
to comment on the appointment. If there are no objections, the tribunal will appoint the expert and90
91

Author’s research.
The price review clause could refer to a specific Churn rate.

17

define his or her mandate. The tribunal will then meet with the expert, and the expert will prepare andsubmit a report. Having received the report, the parties will call the expert for cross-examination. For
that purpose, the parties, the expert, and the tribunal, will typically meet for an expert hearing. Afterthe hearing, and the exchange of post-hearing submissions, the tribunal will communicate its decision
as to the revised price formula.
The whole process will typically take several months to complete, and can be expected to last for overa year if it involves challenges to an expert brought by either party, or the appointment of a second
expert by the tribunal. In some cases, the involvement of tribunal-appointed experts at the adjustment
stage will result in multiple expert reports accompanied by several rounds of written submissions,
meetings with the tribunal, and oral hearings. Although the tribunal is likely to emphasise from theoutset that the mandate of the tribunal-appointed expert is strictly limited to a specific question, andthe expert ‘will not act as an arbitrator’, the practical reality is that arbitrators rarely, if ever, make theirdecisions without substantial input from an expert who will guide them through the particularities andfinancial consequences of price adjustment. In some cases, a tribunal may so heavily rely on expert
evidence in the determination of the contract price that ‘a tribunal-appointed expert may become thede facto decision maker in the dispute’ (Mourre, 2006). This, in turn, will be reflected in the costs ofarbitration. In order to obtain a decision on price adjustment, the parties will need to pay the fees ofarbitrators, the decision-makers and experts, being de facto decision makers, who formally only assist
the tribunal.

An idea: post-arbitration expert determination
An alternative approach to the excessive reliance of arbitrators on expert evidence in pricedetermination would be a formal change of the decision-maker at the price adjustment stage.
Essentially, this would mean that the third-party dispute resolution process will be divided into twophases: arbitration and post-arbitration expert determination. In the first (arbitration) phase, arbitrators
will consider procedural and substantive conditions for a price review. If these are met, in the second(expert determination) phase, the expert (or panel of experts) appointed by the parties, will determine
the revised price. This allocation of tasks will mean that the legal aspects, involving complex issues ofcontract interpretation, are within the jurisdiction of arbitrators, while price calculation, which requires
expert knowledge, is reserved for expert determination.
This twist on bifurcation (as seen in arbitration) takes the decision on the determination of the priceaway from the arbitrators and puts it in the hands of an expert. Like the mandate of an arbitrator, themandate of an expert is defined by the parties to the contract. It could, therefore, be restrained by theparties in a similar manner, as discussed above, and be subject to some specified limits. It might wellbe that the parties entrusting the expert, who is well-versed in international gas markets and familiar
with the intricacies of the LNG business, with the decision as to the contract price would be inclined toleave him/her more discretion, so that the determination of the contract price in the most appropriate
commercial manner is not restrained by any predefined structural, or other, limits. Clearly, the parties
would be able to set stricter time limits for the determination of the price by an expert.

4. Summary and conclusions
Although market conditions trigger price reviews, contractual barriers can well prevent them. The lack,and limitations, of price review clauses in Asian LNG contracts historically translated into a low
number of revisions to prices under long-term contracts in the Asian markets. Contracts finalized inrecent years typically contain price reopeners and stipulate more flexible conditions for a price review
request (including shorter price review periods). LNG SPAs concluded in the 2000s, which accepted aclose link to oil prices in particular, are naturally exposed to price reviews. Considering that thesecontracts can be expected to contain new-generation price reopeners, Asian LNG markets might be
now entering into an unprecedented period of price renegotiations. Japanese buyers have always
been, and are likely to remain (at least volume-wise) at the forefront of Asian price reviews. However,these are not limited to any particular region in Asia, and can be expected to occur in both established18and emerging LNG markets. Buyers in the markets with the strongest long-term prospects for LNG
growth are likely to have the strongest bargaining power in future price renegotiations. Arbitration, thepreferred method of dispute resolution in European gas pricing disputes, is likely to become an
important, novel, addition to the Asian LNG price review landscape. Arbitration of Asian LNG pricing
disputes is unlikely to be a smooth exercise. Rather, it can be expected to involve both unique,region-specific, hurdles and some pervasive problems encountered in earlier price review arbitrations.
In comparison to their European counterparts, Asian buyers and sellers contemplating arbitration for
their contracts are in a privileged position. In particular, they do not need to venture into the unknown
and can capitalize on lessons learned over several decades of handling gas price review arbitrations
in Europe. Offered with a robust, time-tested, and improved, dispute resolution mechanism, they cantailor arbitration to their needs and use it primarily to hedge against the risks of protracted price review
discussions.

19Glossary
ADGAS

Abu Dhabi Gas Liquefaction Company

bbl

barrel

CNOOC

China National Offshore Oil Corporation

CNPC

China National Petroleum Corporation

constant

A component of an oil-linked linked price formula in Asian LNG contracts which adds
a fixed amount to the contract priceGAIL

Gas Authority of India Limited

ICC

International Chamber of Commerce

ICP

Indonesian Crude Price

JCC

Japan Customs-cleared Crude Oil Price, also known as ‘Japanese Crude Cocktail’

JKM

Japan Korea Marker (spot LNG price published by Platts)

KOGAS

Korea Gas Corporation

LNG

Liquefied natural gas

mtpa

Million tonnes per annum

NBP

National Balancing Point

POSCO

formerly known as Pohang Iron and Steel Company

SIAC

Singapore International Arbitration Centre

slope

A component of an oil-linked price formula in Asian LNG contracts (in the Atlantic
Basin known as ‘index’) which is typically expressed as a percentage and determines
how the LNG price changes in response to changes in oil prices

SPA

Sales and Purchase Agreement

TEPCO

Tokyo Electric Power Company

UNCITRAL

United Nations Commission on International Trade Law

20

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