Essay: International Energy Law

Pages: 16 (5741 words)  ·  Bibliography Sources: 1+  ·  Level: Master's  ·  Topic: Energy  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] State authorities sat in front of formal and proper arbitral tribunals and were assisted by foreign counsel, the result of which were important, fair, and legally balanced cases (Kosheri, n.d.).

The International Energy Sector Landscape: In the 1980s

During this decade, the International Chamber of Commerce (ICC) arbitrators of the International Center for Settlement of Investment Disputes (ICSID) panels rendered rulings that exhibited the maturation in the field of arbitration (Sabater, 2011). AGIP v. Congo, Case No. ARB/77/1 occurred during this period, as did the Aminoil Tribunal of 1982, which was characterized by its elaborated and detailed reasoning (Sabater, 2011). A number of petroleum claims were submitted from 1983 through 1987 that were brought before the Iran / USA arbitration Tribunal (Sabater, 2011). In the Sunoil case that lasted from 1985 to 1987, arbitration was further developed (Sabater, 2011). The unanimous decision of the award for the Grace Petroleum case in 1995, rendered by the ICC, could fairly be said to fall in this category, though it is of a subsequent decade (Sabater, 2011).

In the oil price heat-up of 1981, fundamentally a re-run of the 1973 oil shortage (or perceived shortage, as Walde puts it), and during the Iraq-Iran war in the 1980s, overarching transfers of oil field control occurred. During what amounted to a half century following Mattei's time, the industrial powers of Mattei's time shifted substantially, and the New Seven Sisters were selected by the Financial Times -- not an Italian oil magnate. The Financial Times ranked the New Seven Sisters on factors such as the scale of their domestic market, level of output, resource base, corporate ambition, and industry influence. Decades after the mid-century oligopoly reigned, a handful of state-owned enterprises in the emerging markets have taken their places as the primary global oil companies (Vardy, 2007). Ordered by prominence, those enterprises consist of the following: Saudi Aramco, Gazprom of Russia, China National Petroleum Company (CNPC), National Iranian Oil Company (NIOC), Petroleos de Venezuela, S.A. (PDVSA) of Venzuela, Petrobras of Brazil, and Petronas of Malaysia (Vardy, 2007). Over the next 40 years, the International Energy Agency (IEA) has forecast that developing countries will provide 90% of the new supplies of oil (Vardy, 2007).

A wildcatter outlook kept oilmen out of the court houses, it seems, during the 1980s. Dundas (2004), recalling the good old days, maintained that the focus of the "land men" in the field and oil workers in outposts was "primarily on construction, project management, not on arguing exclusion, liability, and other clauses in the legalistic sense, but were of engineering and construction. Most of the personnel involved were non-lawyers, often engineers or Quality Surveyors (Dundas, 2004). That was the culture in Conoco's Projects Division in the early 1980s: Sort out your own problems and don't bother head office" (Dundas, 2004).

The International Energy Sector Landscape: In the 1990s

During this decade, the fourth category of arbitration types dominated. Disputes became more functional and were focused on opposing the interests of public entities (Kosheri, n.d.). These public entities were charged with providing natural resources to their countries "within the context of joint operating agreements" (Kosheri, n.d.). The joint operating agreements were established for the purpose of permitting foreign private entities to exploit the natural resources that were publically owned (Kosheri, n.d.). Arrangements about the production and supply of electricity also fell under the joint operating agreements under what was known as Build-Operate-Transfer (BOT) and other types of profit-sharing or production-sharing agreements of a similar bent (Kosheri, n.d.).

The characteristics of arbitration that addressed these new joint operating agreements had to do with disagreements about international oil companies losing control and ownership of their national reserves. For the most part, national oil companies want to retain ownership and control of their national reserves, but they also want to tap into the technical and managerial expertise, as well as the financial support, of the international oil companies (Hvozdyk & Mercer-Blackman, 2010). Also, national oil companies believe that international oil companies over-produce in their fields in order to keep shareholders satisfied in the short-term (Hvozdyk & Mercer-Blackman, 2010). There is a sense on the part of national oil companies that they do not get the full benefit of their production sharing agreements (Hvozdyk & Mercer-Blackman, 2010).

Several of the foundational arbitrations were the Wintershall case against the Qatari authorities in 1988, the Himpurna California Energy and Patuha Power cases against the Indonesian authorities in 1999, and the Karaa Bodas case which also focused on Indonesia from 1999 to 2000 (Kosheri, n.d.). These arbitration cases ushered in a new era in modern gas and oil cooperative agreements between foreign investors and host countries with BOTs, Build-Own-Operate-Transfer (BOOT) agreements, and other similar arrangements (Kosheri, n.d.).

This decade saw international oil companies dealing with lower oil prices along with fewer geographical opportunities (Hvozdyk & Mercer-Blackman, 2010). The result was that this period saw large oil companies employ cost-cutting strategies and consolidate, all the while abiding by their constitutional mandates that forbid foreign ownership of oil producing lands (Hvozdyk & Mercer-Blackman, 2010). National oil companies experienced substantive fiscal constraints during this period and sought private financing in creative ways. For instance, the INOC of the Islamic Republic of Iran established Build-Operate-Transfer projects with international oil companies (Hvozdyk & Mercer-Blackman, 2010).

Twenty national and international oil companies own nearly 80% of the proven reserves in the world (Hvozdyk & Mercer-Blackman, 2010). Sliced again, of this figure, 60% of the world's proven reserves are fully owned by national oil companies that have complete control over their oil wells; these national oil companies are in Saudi Arabia, the Islamic Republic of Iran, Iraq, and Kuwait (Hvozdyk & Mercer-Blackman, 2010).

The International Energy Sector Landscape: In the 2000s

A little oil b'dness background. In order to frame some of the reasons why commercial disputes increasingly rely on arbitration in this decade, it is illustrative to explore the fiscal and operational constraints associated with, for example, off-shore drilling for oil (Gordon, 2010). To begin, the exploration and development of oil fields in a complicated, costly, and risky business (Gordon, 2010). Typical development of an off-shore drilling project requires coordination on a massive scale. There is "a myriad of contractors, sub-contractors, and sub-sub-contractors, etcetera, expensive sub-sea installations and the construction or conversion of expensive off-shore production assets, all of which must be coordinated to achieve near simultaneous completion within a very tight window" (Gordon, 2010, p. 1). As Gordon points out, if the coordination is not complete within that narrow window, the consequences will be very expensive. Lining up an oil drilling rig takes a long lead-time, and the going rate is in excess of U.S.$400,000. A complex range of sub-sea works must be constructed and completed before the oil drilling rig can be deployed to the site. If the sub-sea construction doesn't come together according to schedule, a delay of many months can ensue -- the result is "millions of dollars in wasted rig hire and multi-million dollar losses due to deferred production" (Gordon, 2010, p.1). To make matters more dire, a Floating Production Storage and Offloading (FPSO) rig will have cost its owner between U.S.$100 million and U.S.$500 million, so the owner of the FPSO will not be at back away from insisting on receiving payment whether production is on schedule, or not (Gordon, 2010). To put it mildly, as Gordon does, "For these reasons, operators and contractors in the offshore construction industry are generally unforgiving, and this leads to disputes" ( 2010, p.1).

Energy industry sector is dispute-intensive. Dispute-intensive is the tag placed on the energy industry sector. Haigh (2007) argues that it is the most likely of all the industries in the world to be in conflict. An extraordinary high level of disputes is generated with regard to oil and gas contracts. The disputes cover a wide range of issues of interest to: Operators and non-operators; those engaged in joint ventures in the acquisition, exploration, and development of oil and gas property; those engaged in the supply and marketing of energy; and those engaged in gas and oil construction projects.

International disputes present a range of substantive challenges. Most fundamental is that of language differences, which may frequently impose the need for translators. Also at issue is that different types of legal systems are in place, even in developed countries. For instance, in Canada, as Haigh (2007) points out, the legal system is based on common-law, while in France it is based on civil-law. Interestingly, many international disputes may be arbitrated in Alberta since the Canadian legal system in Alberta is the hub of disputes across the country, which has resulted in a highly developed corpus of law (Haigh, 2007). Because arbitration outcomes are more widely recognized on an international scale than those derived from court systems with limited jurisdiction, many international disputants elect to employ arbitration (Haigh, 2007). In fact, the New York Convention ("Convention," 1958) permits the awards for oil… [END OF PREVIEW]

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