A leading energy player involved in a contractual dispute with its natural gas supplier regarding a price review. The supplier proposed a significant price increase, citing market changes and upstream cost pressures. The client sought to challenge the methodology, arguing for a fair calculation aligned with market practices and the economics of the value chain, including a netback value calculation in the end-user market.
The objective of the support was to provide robust expert analysis, ensure a convincing argumentation line in order to ensure gas price competitiveness in the end-user reference market.
- Agreement ensuring a fair contractual price adjustment, maintaining the client’s competitiveness while preserving supply continuity.
- Implementation of improved risk-sharing clauses and the development of a forward-looking strategy for natural gas sourcing to enhance resilience against market volatility.
Step 1: Contractual and Market Analysis
- Detailed review of the gas supply agreement, focusing on the price review mechanism and associated market evolutions, alignment with the legal firm.
- Scenario assessment and alignment on the claim
- Comprehensive analysis of regional market trends, price benchmarks, competitive analysis and regulatory frameworks including wholesale market liquidity at both the Reference and the Review Dates.
Step 2: Trigger assessment
- Identification of substantial market changes across the value chain including regulated transport, storage and distribution, competitive analysis in end-user market segments, mains regulatory changes and gas and LNG supply conditions
- Analysis of key sensitivities of the set of potential modelling approaches for gas value, including stock price, flow-price approaches, choice of the Reference and Review periods
Step 3: Netback Value Calculation
- Application of the netback value methodology to assess the gas value across the full set of end-user segments. This approach involves tracing the value of gas from its market end-use backward to the production field, taking into account commercial margin, distribution, transport, storage, importation and shipping costs
- Analyses provided a robust, data-driven argument for challenging the proposed pricing methodology and highlighted inconsistencies in the supplier’s justification based on legacy price review approach, not including gas-to-gas competition
Step 4: Production of an Expert Report
- Production of an expert report incorporating findings from the market analysis, market dynamics and netback value calculations.
- The report substantiated the client’s claims with detailed economic and market-based evidence, strengthening its position during a potential further arbitration.
Step 5: Negotiation support
- Development of a structured negotiation approach proposal, leveraging the expert report and netback value analysis to advocate for a balanced price adjustment.
- Recommendations included integrating risk-sharing mechanisms into the revised contract and exploring diversification strategies to mitigate future pricing disputes.
