Weil’s International Arbitration team successfully resolved a very significant dispute over natural gas prices between longstanding client Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) and Gazprom on 5 November, 2012. The dispute was scheduled to go to arbitration in Stockholm in January 2013.
PGNiG, Poland’s largest natural gas supplier, served notice in April 2011 to revise the price of the gas it buys under its 27-year gas supply contract with Gazprom, which currently has ten years to run. Negotiations were unsuccessful and arbitration proceedings were commenced in October 2011 seeking revision to the pricing formula with retrospective effect as from the date the notice was served, namely for 12 years to the end of the contract.
Besides averting the arbitration, the settlement agreement is expected to achieve savings for PGNiG of approximately $0.75 billion for each year the revised formula is effective. The settlement also brings natural gas prices in Poland in line with prices in other Western European countries.
Lead London Arbitration partner Juliet Blanch commented, “This case is particularly topical in light of the current global focus on the oil and gas sector, particularly with respect to alternative energy. The case clearly demonstrates that the emergence of shale gas has permanently severed the link between oil and gas prices, which could have a significant impact on the profits of the oil producers, as well as changing the length of contracts pursuant to which producers sell gas from up to 25 year long-term contracts to shorter contracts which will be 100% hub indexed or a hybrid model partially based on hub pricing and partially oil indexed. This is an area in which the UK is currently at the forefront of hub pricing for gas sales, but which continental Europe is quickly following, as demonstrated by Weil’s recent successful settlement for PGNiG, and which will then ripple out to Asia.“
The case was led by International Arbitration partners Juliet Blanch in London and Jaroslaw Kolkowski in Warsaw, assisted by Warsaw associate Patrycja Zoledziewska and law clerk Krzysztof Sajchta. There has been a noticeable increase in arbitrations involving emerging markets over the past years, and this case represents an example of the seamlessness of Weil’s ongoing arbitration work between our London and Eastern Europe offices. The significance and international nature of this case also highlights the strength and abilities of Weil’s global International Arbitration group and further reinforces our position as a leading international arbitration firm.
