Reed Smith Client Alerts

Key takeaways

  • The COVID-19 pandemic, Western sanctions on Russian companies and goods, and price volatility have caused a sharp increase in both the number and value of disputes in the energy and commodities sectors.
  • The shift towards cleaner energy has changed the nature of disputes in these sectors, with a notable increase in performance related disputes arising under LNG sale and purchase transactions.
  • The proliferation of ESG regulations globally and in South East Asia is likely to cause disputes under long-term supply contracts, as parties allocate the burden and cost of compliance. To mitigate this risk, contracts should clearly specify compliance responsibilities to future-proof against regulatory changes and geopolitical disruptions.

In a recent interview with Asian Legal Business, Reed Smith Energy and Natural Resources partner Nick Moon shared his thoughts on the latest trends in energy and commodities disputes in South East Asia. Topics discussed included the impact of trade disruption and price volatility in the commodities markets, how the clean energy transition is changing the nature of disputes, South East Asia’s role in the critical minerals supply chain, and the risk of increased environmental, social and governance (ESG) regulation giving rise to disputes under long-term supply contracts. A summary of the interview is set out below.

The impact of trade disruption and price volatility

The last few years have been a period of significant challenges and price volatility for market participants in the energy, transport and commodities sectors. The COVID-19 pandemic and resulting lockdowns caused energy and commodities prices to plummet. Then, as lockdowns began to ease, increased demand, combined with Western sanctions on certain Russian energy companies and Russian origin goods, caused substantial price rises on commodities ranging from natural gas and coal to metals and wheat.

The disruption caused by the combination of the pandemic, Russian sanctions and price volatility resulted in some market participants having difficulty in performing their contractual obligations. Consequently, we have seen a sharp increase in the number of disputes arising between parties in these sectors. According to the Singapore International Arbitration Centre’s (SIAC) annual reports, in 2018, 27% of new claims filed at SIAC were in the “trade” sector, rising to 47% in 2023.