The Energy Sector suddenly offers undreamed-of Opportunities

The major upheaval in the energy sector due to the war in the Ukraine suddenly offers unexpected and unprecedented opportunities for investors in the energy and related industries, such as manufacturers of equipment and construction and engineering companies specialized in energy infrastructure.

Original interview published in “PANGAEA magazine”:—dr-johannes-p-willheim

Europe is in dire need for ports for liquefied gas with facilities where the liquefied gas can be converted, and new pipelines through which pipeline gas from alternative suppliers can be transported to Europe. Research projects for renewable and alternative sources of energy are also being promoted. The current crisis brings opportunities in a market which was closed and undergoing a predictable slow transformation. With the recent developments, no stone will be left unturned. PANGAEA has obtained information from Dr. Johannes P. Willheim, who has the best insight into this subject. The lawyer works for the international law firm “Jones Day” and specializes in international arbitration and energy markets. He has guided numerous energy companies through the first major transformation of European energy markets in the 2000s and conducts arbitrations worldwide to resolve disputes arising from energy supply contracts as well as transactions and projects in energy markets.


In the early 2000s, the first major upheaval took place in the European Union energy sector. At that time, the former national state monopolies for energy were abolished to create EU-wide energy markets in which the energy companies competed across borders for the benefit of customers. This meant that the former state monopoly companies had to radically adapt to compete internationally. Consumers, such as household, industrial and commercial customers, suddenly had the advantages of being able to choose from a pool of suppliers and contracts and were no longer at the mercy of their member state’s monopoly companies.


For the energy companies, this meant an enormous upheaval. They had to radically adjust their business models in every detail. At the same time, however, this market opening also offered great opportunities, since new players could enter the market and were able to revitalize it for the benefit of consumers. Since then, the European energy market has experienced 22 years of restructuring. New companies have entered the market, and old players have left or restructured. Numerous new products have emerged, and for gas, new exchange-like trading venues, known as gas hubs, have even emerged. At the import level, however, nothing changed. Most natural gas came from Russia based on long-term supply contracts. Russian gas from these contracts was also a basis for the European energy transition, the so-called Green Deal. Natural gas is a green energy resource in the EU taxonomy, and the Green Deal also coincides with the term of the long-term supply contracts for Russian gas.


The Green Deal initiated a slow and gradual transformation process in EU energy markets. The war in Ukraine abruptly changed this. In response to the war in Ukraine, the EU has embarked on a transformation process that will far surpass that of the earlier 2000s. In March of this year, the EU unveiled a draft program to reduce the EU’s dependence on Russian gas, “RePowerEU.” As alternatives to Russian gas, the EU is relying primarily on imports of liquefied natural gas and pipeline gas from other producers such as Norway, as well as alternative fuels such as hydrogen and biomethane. In the short term, tangible reductions in energy consumption will be required, and, in a best-case scenario, government-imposed allocations of available volumes will also be provisioned. The fate of the long-term contracts for Russian gas (until 2030) has not yet been addressed by the EU. In purely legal terms, these contracts are currently intended to be fulfilled by both sides, i.e., the supplier and the importers from the EU.

At present, however, there is uncertainty in the market as to whether the Russian suppliers will actually fulfill these contracts, Willheim told PANGAEA. Some countries are experiencing supply disruptions for various reasons. In the case of the Nord Stream 1 pipeline, technical reasons would be responsible for not being able to deliver the gas in the agreed volume. Here, for example, a turbine serviced in Canada could not be returned to Germany due to sanctions. In other countries, the background to the delivery difficulties, delivery stops, or cutbacks is that the customers would not have been willing to accept Russia’s unilateral change in the currency conversion from euros or U.S. dollars to Russian rubles to pay for the gas. In all these cases, Willheim said, the question of the justification for supply cuts or stoppages must be clarified in each individual case in a procedure based on the rule of law, usually arbitration. The outcome of such proceedings is open and depends on whether justified supply interruptions or violations of supply obligations are established. If violations are established, the supplier would be liable for damages (e.g. for the high costs of procuring replacements) and would at most also have an extraordinary right to terminate without notice.


Willheim, could not judge geopolitically, whether Russia would actually cut off gas for Europe and sell it to other countries. Currently, the gas volumes that Russia does not or can not supply to Europe remain underground, and Russia currently has nowhere else to sell them. From a purely economic point of view, therefore, Russia needs to maintain an interest in fulfilling their existing long-term supply contracts with European importers. Russia would not be able to sell the stored gas volumes to any alternative consumers until a second gas pipeline project in Asia from Russia to China is completed. The “Power of Siberia 2 pipeline”, is expected to be built in a time forecast of approximately seven years. The situation is a little different with regard to oil, which does not require a pipeline for delivery. Oil can be transported much more easily, for example, on ships.

Europe could therefore turn off the tap for Russian gas much sooner than Russia. From a purely legal point of view, Dr. Willheim emphasizes, there are still long-term supply contracts that must be honored by both sides. In his view, the purchase obligation of European importers could only be capped by a government order. In that case, it would be legally impossible for buyers of Russian gas in the EU to continue to fulfill these contract obligations. So far, he said, he has not noticed any initiative at the legislative level to impose offtake bans or embargoes.

However, if unilateral contract termination were to occur, the relevant arbitration courts would have to decide on the justification for it. Arbitral tribunals, Willheim said, are required, like federal courts, to decide whether there is a claim or breach of contract based solely on the facts and law of the case. Arbitral awards, like court judgments, are then enforceable in enforcement proceedings. Compliance can therefore be enforced by federal powers.

It happens again and again that states do not abide by the rulings of arbitration tribunals, says Willheim. South American countries are well known for this practice. However, he says, investor-state jurisdiction shows that political circumstances change over time and arbitration awards are very often obeyed, albeit later, when a paradigm shift has taken place. Whether this then helps the companies directly affected is a question of time.


The European Commission wants pipeline gas from alternative sources to replace Russian natural gas, although these sources are extremely limited geographically and the infrastructure to ensure that the gas volumes reach the EU is almost non-existent. The pipeline infrastructure was designed to deliver gas from Russia. In addition, alternative countries such as Qatar do not see themselves in a position to supply Europe.

The European Commission is therefore relying on liquefied natural gas, predominantly from the United States. The problem, however, is that the infrastructure for receiving liquefied natural gas in Europe in the required quantities is by no means adequate, Willheim said. There are not enough Liquid Natural Gas [LNG] terminals, (i.e., ports where LNG is delivered and then re-gasified and injected into the gas grid,) and there are not enough pipelines to transport the re-gasified LNG within the EU. For example, while there are enough LNG terminals on the Iberian Peninsula, the LNG brought ashore there cannot be effectively transported to northwestern Europe due to a lack of sufficient pipeline capacity.

In addition, Willheim said, the European Commission is placing massive emphasis on hydrogen and biomethane as alternative fuels to the existing fossil fuels of oil, gas and coal. Here too, it is expected that extensive investments, support measures and financing incentives will be created for the necessary infrastructure and research. And as a last resort, he said, the commission is also relying on gas demand reduction, (i.e., consumer conservation.)

To ensure that large volumes of liquefied natural gas from the U.S. reach the EU via the world market, the EU and the U.S. have established a working group to create appropriate incentives for U.S. producers. As part of this cooperation, the EU has already recognized the importance of long-term supply contracts, which have been targeted by competition watchdogs. Long-term supply contracts are essential for financing infrastructure projects such as gas production facilities or LNG terminals and can offer price advantages for both suppliers and buyers over their term. This is because, depending on the specific pricing arrangements, prices for supplies under long-term supply contracts tend to be less volatile than current market prices. In addition, the importance of the U.S. Henry Hub gas trading hub in Louisiana has been recognized by the U.S. and EU as a key price signal for liquefied natural gas traded on world markets.


Willheim summarizes the current situation: “The situation on the EU energy markets is currently bitter. Concerns that too little gas will be available for the winter and extremely unaffordable prices are the order of the day. Added to this is the uncertainty as to whether and how the very short-term change in thinking away from the major importance of Russian gas in the EU’s energy mix will succeed. But if you look at the package of measures that the EU has put forward with RePowerEU, you can see that it also offers enormous opportunities, comparable to the transformation process in the early 2000s.”

It is foreseeable that the implementation of this plan will lead to an unexpected and sudden opening of a relatively closed market in the medium term. This would bring with it an enormous dynamic. In the short term, massive investments in gas infrastructure are on the horizon, which were unthinkable before February 2022. In addition, there will be even greater investments in innovation. This would benefit a wide range of industries and companies, from energy companies to planners and the construction industry as well as a variety of research institutions and consultants.

“So it is likely that much of the additional gas to replace Russian gas in the EU will come from the U.S. based on long-term supply contracts. It can be assumed that the prices for these supplies will be based on the prices of the Henry Hub in the U.S., for example by indexing them to this price,” says Dr. Willheim.

Is the energy supply in Europe thus secured? Can the energy demand even be met with the liquefied natural gas supply from the U.S., wind turbines and solar cells? Willheim said, “Renewable energies are currently not yet able to completely replace fossil energies, especially gas, because it is not possible to store the energy generated from wind and sun. Innovations and research are certainly still needed here. Until then, we will certainly have to rely on natural gas, and that was also recognized in the Green Deal. Hydrogen, which is produced from solar energy, will then play a key role. Hydrogen has the advantage that it can be stored and converted.”


Willheim says gas resources are scarce in Europe, but they would be less scarce if environmentally harmful production and technologies were allowed. Resources are scarce because existing deposits in the U.S. cannot be used for environmental reasons. Therefore, we – that is, humanity, responsible humanity – would deliberately make the available volumes scarce to somehow manage this balancing act between preserving or even saving the environment and what we would need to be able to access in terms of on-demand energy requirements.

Commenting on the price developments in the energy sector, the expert said that they were already dramatic because much was still associated with great uncertainty. “Markets are always very volatile when there is a lot of uncertainty,” he said. “There have been factors that have led to shortages in world markets, not only because of the conflict in Ukraine, but also because of a major fire at an energy producer in the United States, for example. This would have led to a massive drop in production. Now we would come to the delicate phase, the winter, and we would not know to what extent the existing supply contracts would be fulfilled.” “Maybe there will be a positive surprise,” Willheim went on to say, “It is exceedingly difficult to predict what will happen. Markets would assume that supplies under existing contracts in the European Union are at risk,” but he, Willheim, is more positive minded and feels confident that legal obligations under supply contracts will be honored and fulfilled by both sides.

The price of electricity had already risen sharply before the Ukraine war, he said, and it continued to rise after the war broke out in Ukraine. The same was true for the price of gas, Willheim informed. There had been speculation that artificial manipulation, which was not empirically proven, was responsible for this. Rather, he said, there were other reasons, such as developments of the world market. In the case of electricity prices, the rates in Europe are often formed on the basis of the price of gas, because natural gas is one of the primary energy sources for electricity generation and there is therefore a direct correlation. If there were a shortage, the consumer would feel it not only at the gas tap but also at the electricity meter. This impact to the world market was already dramatic before the Ukraine conflict, at the end of 2021.

When asked which form of energy Willheim believes has a chance in the future, the business attorney said McKenzie has done a large-scale study that shows gas will continue to be the most important energy source for the next 20 to 30 years. “That’s because gas is so important for power generators, and is also important for firing industrial plants,” he said. “Whether it will continue to be gas from Russia or liquefied natural gas from the U.S. depends on where it’s located.” Willheim estimates that liquefied natural gas will become enormously important in Europe precisely because there are few alternatives to pipeline gas. Future energy suppliers could be Azerbaijan or Israel, in Willheim’s view. But there, too, the pipeline structure would first have to be created. The business lawyer cites hydrogen as a great hope for energy futures.

Images by Willfried Wende, Ratfink1973 and Norbert from Pixabay

Pangaea Comment

Dr. Johannes P. Willheim, M.B.L.-HSG, LL.M. FCArb, is an attorney specializing in international arbitration and energy. He is a partner at Jones Day, one of the leading global law firms. He advises energy companies and investors worldwide on transactions and collaborations, and represents them in international arbitration and litigation, as well as in governmental proceedings, such as before regulatory and antitrust authorities. In connection with the liberalization of EU energy markets, Dr. Willheim has advised and represented companies at all economic levels. He is known for his representation in gas price arbitration proceedings in Europe and Asia and is considered an authority in this field. He is currently working with Jones Day colleagues to guide market participants through the current energy crisis and prepare them for the initiated transformation of EU energy markets.
In addition to his legal practice, Dr. Willheim is a Visiting Professor of International Arbitration and “Integrated Dispute Management” at the Strauss Institute for Dispute Resolution at Pepperdine University Law School in Malibu, California, at the University of Chicago Law School, and at Stockholm University.

This interview was recorded prior to the incidents on 26. September 2022 which caused significant harm to the two North Stream Pipelines.

Team Pangaea