The past years have seen many disputes between parties to long-term gas storage contracts in Germany. This case began with a request for price adjustment in late 2013, after market prices of gas storage had decreased to unprecedented levels. The gas storage customer requested a price adjustment to bring the old contract price in line with the new market reality. The request for a price adjustment was rejected by the gas storage operator, resulting in five years of commercial arbitration proceedings.

NERA’s team, led by Managing Director Tomas Haug and Associate Director Bastian Gottschling, was retained as the party-appointed expert for the gas storage customer. We were instructed to analyze whether the change of the gas storage market—in particular, the decrease in the market price level for gas storage—was unforeseeable at the time the parties entered into the contract.

As part of our case work, the NERA team drew on recent analysis by Jonathan Stern and Howard V. Rogers, who identified a “perfect storm” in Continental European gas markets (an unprecedented combination of market changes), including the financial crisis, liberalization, regulation, and also coincidental changes in other markets and sectors.[1]

We found that market participants did not foresee the “perfect storm” in gas markets and its impacts on the relevant gas storage market in our case. We conducted detailed analysis of gas and storage markets and a comprehensive review of regulatory decisions, consultations, and other expert analysis to reconstruct expectations at the time the parties entered into the gas storage contract. In particular, we showed that economists expected that the markets would open up to competition only gradually, and that it would take a long time for effective competition to be attained in the relevant geographic market area.

The arbitral tribunal endorsed our expert report and testimony, and the tribunal ruled that the gas storage customer was entitled to a price adjustment based on unforeseen changed market circumstances.

[1] Stern and Rogers (2014), The Dynamics of a Liberalised European Gas Market – Key determinants of hub prices, and roles and risks of major players, The Oxford Institute for Energy Studies, pp. 11. (https://www.oxfordenergy.org/publications/the-dynamics-of-a-liberalised-european-gas-market-key-determinants-of-hub-prices-and-roles-and-risks-of-major-players/).