Oil, Gas & Energy Law

Introduction

Energy markets are inherently international. Oil markets are the obvious example of this. Actors, markets and most other elements of this segment of the energy world are all international in scope. But the same is becoming for natural gas. With increasing vlumes of LNG coming from many areas of the world, the natural gas market has moved from national or regional to international. It is on its way to coming global. Other areas like renewable energy are usually thought as being national. They are not. There are many areas in which renewable energy markets are international. Investments in this area are international, just consider the many international investment law disputes in Europe. Investors in these cases are international investors. WTO disputes in renewable energy point to the same conclusion. What is more, in designing national regulatory and support instruments for renewable energy, countries look to other examples and through a careful comparative approach they then design their own regulatory scheme. Therefore, renewable energy markets are international. And international law and international energy law is relevant for these market as well as all other energy markets.

As noted by the late Professor Wälde, over the past few decades, energy trade has transcended national borders. With privatization, restructuring, the emergence of competitive markets, cross-border energy trade and regional integration, energy trade has become international in nature. This transformation has not occurred without having had an impact on regulatory models and governance structures for various parts of the energy value chain, from exploration and production to international transport and downstream energy markets. The internationalization of energy markets has consequences for the regulation of these markets. International markets call for international regulation. Separate national regimes are not enough.

The objective of this OGEL special issue on "International energy markets" is provide those not so familiar with energy law and international energy law a source of basic knowledge. The intention is not to cover all aspects of international energy law but rather to provide a solid foundation to build further knowledge on. The idea behind this special issue is to provide information and material for students enrolled in energy law or international energy law classes in various universities across the globe. However, it is also a source of information for lawyers and non-lawyers that have the opportunity to work in this area without much background.

The special issue provides an overview of legal and regulatory issues affecting all parts of the energy value chain, from upstream to downstream. It also shows how various areas of international law impacts energy markets and energy market actors. As such, it provides a comprehensive overview of what "international energy law" is.

Kim Talus and Raphael Heffron.

Introduction

There are hundreds of different industries, only a few of which have spawned professional and academic sub-disciplines. The energy industries have been among the most dominant industries of the twentieth century - the lifeblood of the modern economies, fuelling both industrial and private consumption. The energy industry lies behind all societal functions. In the words of the Court of Justice of the European Union (discussing petroleum): 'Petroleum products, because of their exceptional importance as energy sources in the modern economy are of fundamental importance for a country's existence since not only its economy but above all its institutions, its essential public services and even the survival of its inhabitants depend upon them.' Given this fundamental importance of petroleum products and energy more generally, coupled with the economic value that this industry and its activities represents, it is little wonder that energy law and international energy law have emerged as academic disciplines and as areas of specialization among practitioners. Similarly, it is little wonder that it has led to the emergence of international institutions and international practices, and has contributed to international law in a general sense.

Despite this significance of energy, and the interest in energy law and energy regulation, there has so far been relatively limited discussion in what "energy law" is and what constitutes "international energy law". The objective of this article is exactly that. It draws on previous publications by the authors (identified later) and suggests that there is a need to discuss the nature of "energy law" at a more fundamental level.

Abstract

Revisiting the actors in international energy law represents a valuable opportunity to assess the development of international energy law itself. Since global energy systems present diverse challenges to energy stakeholders, the laws that govern management of energy resources, therefore, need to be innovative and engage with all relevant participants in energy systems. This way, international energy law may then offer practical principles, rules and guidelines to create efficacious solutions to a dynamic global industry. This article suggests that re-examining the recognition, status and role of stakeholders in the regulation and management of energy resources is useful in several ways: First, it helps to expand the parameters of international energy law as a discipline because evaluating the key participants of the energy sector is one of the foremost practical steps in assessing the development of the law that applies to management of energy resources. Second, by holistically identifying the entities that have an influence on the sector, it may provide a more nuanced view of the impact of international energy law in practice and, third, it may help in developing more flexible and efficacious international energy law principles by recognizing, assessing, and perhaps even forecasting which actors matter in energy systems, beyond Nation-States. The aim of this contribution is to suggest the revisiting of the criteria used to identify the main actors in international energy law, to assess their participation in processes related to international energy law, and to postulate what the emergence of new participants portends for the development of international energy law. It is concluded that not only should all parties affected by the law be engaged in its making, implementation and enforcement but also that actors with real or potential influence need to be engaged in international energy law processes for it to be effectual to a dynamic global industry.

Introduction

The number of transparency initiatives in the energy and extractives sectors are on the rise. This paper aims to provide a navigating tool and guide to these frameworks that are important to achieve the SDGs and Paris Agreement goals. This paper provides a synopsis of relevant databases, digital knowledge hubs and depositories and a mixture of hard and soft law and self-regulation instruments. The objective is to provide a holistic understanding of the changes that are taking place in terms of improving transparency and accountability in the field of energy and extractives law, governance, economics and policy space. It is aimed that this collection of initiatives facilitates further research into different pathways governments, companies and the civil society can take to make information more available and accessible for all stakeholders of the value chain. The focus of this paper will be predominantly global but influential regional and national actions will also be covered. This paper will present the initiatives in three subgroups, energy and extractives related instruments and cross-cutting frameworks that are relevant for both. The digital data exemplified and listed in this paper is aimed for an audience of researchers, students and lecturers and energy professionals as digital learning fosters life-long learning and continued professional development..

Introduction

'Petroleum products, because of their exceptional importance as energy sources in the modern economy are of fundamental importance for a country's existence since not only its economy but above all its institutions, its essential public services and even the survival of its inhabitants depend upon them.'

As put by the Court of Justice of the European Union in its judgment in Campus Oil, the modern economy is built on petroleum products and hydrocarbons. While the global energy mix is today more diversified than ever, hydrocarbons continue to produce most energy the modern society needs to function.

Driven by economic and population growth, global energy demand is increasing. The International Energy Agency (IEA) has forecasted a demand increase of around 30 percent by 2040. Due to considerations like impact on the environment, the fastest growing component in the global energy mix is natural gas. The demand of natural gas is expected to grow around 45 percent by 2040. While much of this increase comes from China and the Middle East, natural gas is projected to also become the leading fuel in countries belonging to the Organization for Economic Cooperation and Development (OECD) in around 2030, partially helped by new regulations limiting power sector emissions.

Introduction

Downstream regulation of energy markets is, as the name already suggests, largely a domestic affair. Indeed, there is no internationally regulatory regime that provides explicit rules for downstream energy. This is a consequence of the fact that the supply of energy down the stream until the final customer always includes a significant local component. The approach towards downstream energy regulation adopted by the European Union ("EU") provides generally applicable insights into the elements of such regulation and the objectives that it seeks to achieve. The EU has experimented with various regulatory solutions for its downstream markets over the last decades and, as a direct consequence, has a modern and well-developed regulatory framework that is based on competitive markets.

Indeed, it has been more than twenty years since the Commission of the European Communities presented its Green Paper for "A European Union Energy Policy". The Green Paper contributed to the momentum for the creation of an internal market for energy. In the years that followed the EU moved ahead with several "Energy Packages" that contain the rules and obligations for the EU member states to move towards the goal of an internal energy market with a sufficient degree of competition between the market actors. The EU's energy policy has always been shaped in light of several (competing) objectives as well as emerging new energy technologies. By means of example, the Green Paper notes that technological progress enabled the continued production of profitable oil and gas in the North Sea, even as oil prices halved in 1986.

Introduction

This paper takes as its starting point that the concept of 'sustainability' in the energy sector context encompasses two main ideas. First, the concept enshrines the need of cutting the greenhouse gases that can be best done through the introduction of energy efficiency measures and low-carbon energy sources in addition to carbon pricing, which in turn require enabling, long-term policies and attractive regulatory frameworks. In this respect, government subsidies have traditionally been the key drivers for investments to renewable energy sector.

Second, the concept relates to sustainable development, a concept, which is sometimes used also as a synonym for sustainability. The concept has often been associated with the evolution of the United Nations organization after the World War II, and it in particular evolved at the UN conference on the Human Environment, held in Stockholm in 1972. This event marked the beginning of international focus to environmental concerns, which had achieved very little international attention earlier. In particular, the Stockholm conference emphasized the link between economic development and environmental degradation. The Stockholm conference was followed by three other UN conferences, twice in Rio and once in Johannesburg, that have marked an increasing global focus on not just environmental matters but on an integrated conception of environmental, economic and social determinants of the human future. While the Stockholm conference records do not define sustainable development per se, the concept of sustainable development has its origins in a report published by the World Commission on Environment and Development, later known as 'the Brundtland Commission', in 1987. 'Sustainable development' was defined as development 'that meets the needs of the present without compromising the ability of future generations to meet their own needs.' The concept acquired political impetus through rising public concern in the developed nations over global environmental change. The 1992 Rio Declaration states in Principle 3 that 'the right to development must be filled so as to equitably meet the development and environmental needs of present and future generations'. Ever since, sustainable development has become a concept that (should) underpin(s) almost all human action.

Introduction

Under the 1982 United Nations Convention on the Law of the Sea coastal states are entitled to claim rights over the resources of the sea and seabed out to at least 200 nautical miles (nm) from their coasts and, in the case of the seabed, potentially much further. As a result, more than 30% of the world's oceans now fall under state jurisdiction, with overlapping maritime zones creating the need for some 430 international maritime boundaries - fewer than half of which have been agreed or partially agreed.

With the oil and gas industry operating in ever-deeper waters, exploration and production companies increasingly find themselves interested in areas over which two or more states claim jurisdiction. The purpose of this paper is to provide an overview of the international legal regime governing maritime jurisdiction and boundary delimitation and discuss recent developments in maritime boundary dispute resolutions relevant to those with an interest in international energy law.

The paper begins with an overview of the law of the sea relating to maritime jurisdiction and boundary delimitation. It then examines the types of situation in which boundary disputes arise and the options available for resolving such disputes with reference to specific cases.

Executive Summary

International investment law is constantly evolving. The modern system is characterized by the steady proliferation, over the past five decades, of high-profile investor-state arbitrations. In these arbitrations, foreign investors seek compensation for breach of public international law by sovereign states. As this chapter will demonstrate, modern investment law owes much to energy disputes. These energy disputes catalyzed the development and refinement of the concepts at the heart of investor-state arbitration. While the number of filed investor-state arbitrations is at an all-time high, and growing, serious challenges confront its continued viability—not just among developing countries, but in traditionally hospitable jurisdictions in North America and Europe. Whatever the future of international investment law, it is clear that energy disputes—including those pending at publication—will be at the forefront of its development.

Introduction

Energy goods and services underpin nearly all modern human activities, empowering basic human needs such as heating and lighting, but also more advanced activities such long distance communication, transportation, industrial production and national security. Generally, the harnessing of natural resources for work has liberated human energy for other activities and has thus played an important role in the establishment of modern societies. Yet, despite its fundamental importance and ubiquity, the multilateral regulation trade in energy goods and services remains wanting in many respects.

The energy sector is of key importance for governments in their quest to ensure a continuous supply of affordable energy. While downstream activities, such as generation of electricity, transmission and distribution are activities operated in all countries, the uneven geographical distribution of natural resources means that the majority of countries are dependent on imports of primary energy sources. Of total proven coal reserves nearly 80% are located in only five countries, while 60% of natural gas and oil reserves are located in five countries, respectively. In 2014, trade in fuels accounted for a total of 16.6% of merchandise trade, making it the largest goods category in terms of value. This reflects the fact that those countries that have no or not sufficient native energy resources to meet domestic demand are reliant on trade with energy exporting countries to meet their demand. On the other hand, energy exporting countries are often dependent on the revenues generated from the export of their natural resources.

Introduction

Regardless of the nature of the host government contract that grants mining or petroleum rights, there are numerous measures that International Resources Companies ("IRC") can take to minimise contract and country risk. Most of these measures are preventive measures that need to be addressed in advance but others are responses to specific threats that an educated IRC needs to be mindful of. In the area of natural resources, the battle of resource sovereignty versus contract sanctity is ever present and policy decisions may change fairly rapidly. A prepared IRC is usually in a much better position when those threats appear. When an IRC decides to invest in a foreign country, it must assess the commercial feasibility and the expected return from a project whilst considering both the investment environment and regime. All investments come with some degree of risk, usually, the higher the potential return, the higher the possible risks. To be clear, IRCs are willing to take geological risk; that is their business. Apart from the common investment and market risks, IRCs must take into account the risks that are inherent to energy projects due to the unique features of the investments and the sector as a whole. Such projects lack stability due to the economic, financial and political risks that they encounter. These investments usually are based on a negotiated separate corporate-host investment agreement that enables them to address their subjective needs. The real concern of IRCs when using such contracts is not the possibility of host governments having a strong bargaining position leading to favourable terms but rather the possibility of being subject to political processes and current events which may hinder the achievement of their goals and operations.

Summary

The purpose of this paper is to provide an overview of the international agreements specific to the LNG industry. An introductory section will describe the LNG industry and explain that LNG differentiates itself from other hydrocarbons because it concerns itself mainly with the logistics of natural gas (in liquid form). The other sections will discuss how the different logistical steps, commonly known as the "LNG chain", interact with the LNG trade. Section 2 will deal with LNG export projects, section 3 will discuss LNG sales agreements, section 4 will give an overview of LNG transportation, and a final section 5 will discuss LNG import terminals.

Introduction

The legal framework for cross-border pipelines - concerning both domestic and international pipeline models - remains rather complex. The pipelines are unique in their own way and are considered as a separate entity. As a result, there is no single regulation or legal means in controlling their operation.

Two types of cross-border pipeline arrangements exist. The first is the domestic pipeline model, which is governed under national laws of a country through which the pipeline is passing. Since such pipelines can pass through different countries, such pipeline chain can have several operators or owners at the same time. Further 'the regulation of transnational pipeline issues is based on contracts between owners or operators of national sections, or by agreements with respective governments'. Although a sound legal framework in respect to pipelines can help lower disputes between various contractual parties within the transnational pipeline chain, 'the most durable would be bilateral and multilateral treaties that provide the legal foundation on which commercial agreements relating to cross-border pipelines would be based'.

The second cross-border pipeline model is the international model, where the entire pipeline chain is considered a single integrated entity. Such pipelines tend to have a legal regime, established through the signing of various intergovernmental agreements and commercial contracts between the parties involved in the pipeline project. These projects tend to be 'protected by intergovernmental agreements proscribing unwarranted disruption of the flow and undue burdens of excessive transit fees or taxes'. These pipeline projects are often established in areas known for their political volatility, and as a result active participation of the government is required for the smooth operation of the project.