A resource for in-depth understanding into various topics relating to conflicts, disputes, alternative dispute resolution mechanisms and much more.
Growing importance of mediation in the Oil and Gas Industry
The twenty-first century is a global marketplace like never before, with an increase in international trade and investment, particularly in India, which is a developing economy that relies on other countries for imports of basic and important raw materials, products, and so on, and similarly, by exporting, they increase their foreign investment, and these transactions help India to stand strong all across the world. And one of India’s most important industries in this global exchange is the oil and gas industry. India is the world’s second most populous country, with a rapidly developing economy; these factors explain the country’s need for energy and its massive consumption. After the United States and China, India is the third largest consumer of petroleum products, the second largest oil importer, and heavily reliant on imported crude oil. The Petroleum Planning and Analysis Cell (PPAC) of the oil ministry estimates that 84% of India’s energy requirements are presently met by imports. These figures show that there is a strong reliance on oil, which heightens conflicts. More disputes will harm India’s economy because of how important the oil and gas industry is to that country.
Oil & Gas Industry Disputes
Oil is the most crucial substance in the modern world since it is the primary reason we have and can utilise advanced technologies every day. The oil and gas industry, one of the world’s largest, has a profound impact on practically every element of global life, including manufacturing, transportation, heating, and power. As a result, the importance of promptly resolving disputes rises dramatically as the sector’s size and number of disputes expand.
Disputes in the oil and gas business can take on an almost limitless number of shapes. Disputes in this business might be vertical or horizontal. Vertical disagreements arise between parties from several industrial divisions (tiers). The industry is mainly divided into four tiers: at the apex, the first tier is made up of host governments (as the owners of the resources); the second tier is made up of oil and gas firms; the third tier is made up of service providers; and the fourth tier is made up of equipment providers while horizontal conflicts occur between parties on the same tier, such as states (which including border conflicts) or oil businesses that are joint venture partners. Oil and gas disputes are not only common because there are so many people, businesses, and countries involved, but they also have certain distinct characteristics.
The disputes in this sector are very expensive, for instance, in the Deepwater Horizon dispute, BP Exploration & Production, the leading operation, contracted with a law firm in Washington and paid the firm $2.5 million USD for only three months to run a claims-settling facility, while another Washington law firm was paid a monthly fee of $850,000 USD. The Piper Alpha North Sea disaster, which occurred on July 6, 1988, but the final judgement wasn’t rendered until February 2002, is an example of how conflicts in this industry tend to be prolonged due to the number of parties and interests involved and the fact that litigation is pursued. Such a protracted wait hurts the company’s reputation since it draws negative attention, which turns off customers and investors. Furthermore, conflicts in this field are typically between multi-national corporations (MNCs) or between two nations. In the Deepwater Horizon issues, for example, the principal companies- BP, Transocean, Halliburton, Schlumberger, and Weatherford, among others- are all multinationals with interests in many nations. As a result, conflicts in this business are not limited to one or two nations, but to several countries, and if not handled quickly and efficiently, they will have a significant influence on the economies and societies of not just the countries concerned, but also on the worldwide market.
The consequences of these disputes
The oil and gas industry is one of India’s eight essential sectors and has a significant impact on how critical decisions are made both within and across nations. The need for oil and gas is expected to rise as a result of the direct connection between India’s economic growth and its energy needs, making the industry very favourable for investment. The odds of this business receiving substantial investment, however, are greatly diminished by the large number of conflicts with millions at risk. It is crucial to settle these issues, but it is even more crucial to do it properly, which, in my opinion, entails using alternative dispute resolution rather than traditional litigation. Previously, issues were mainly handled by litigation, which is a long and laborious process. Furthermore, courts are exposed to considerable exposure and media trial, compromising the parties’ commercial image. A party’s goodwill and reputation are its intangible assets, which I believe are far more valuable than one’s financial capacity, but resolving disputes through litigation not only damages the reputation, breaks trust, and drives away investors and customers, but also burns a large hole in the pockets of these parties due to high litigation costs. In the oil and gas industry, the relationships between the parties are highly important because they sustain one another and the economy. Going through litigation means severing those relationships, and this severing has an impact on the economy, the energy sector, and our daily lives. As a result, developing strategies for maintaining the connections between the parties as well as resolving disputes is even more essential.
Reasons for Growing use of Mediation
The oil and gas business, as we previously noted, has historically preferred direct negotiation or outright litigation above any other type of conflict resolution. But thankfully, there has been a positive shift in the industry’s dispute resolution practises, which now favour mediation over formal litigation. The most well-known and often used ADR method in cross-border business transactions is mediation. Oil and gas companies and nations always operate in accordance with their needs, wants, and plans, which is why litigation is inappropriate for this industry because the parties before the court have no control over the procedure and therefore matters of speed and flexibility are out of their control, whereas in a mediation the control of the procedure is with the parties and parties enjoy unlimited autonomy and the utmost liberties. Furthermore, the oil and gas industry is a capital-intensive business that requires a quick and cost-effective dispute resolution process, and a recent study conducted in three major jurisdictions—the United Kingdom, Canada, and the United States—found that mediation saves businesses significant money and reduces workplace conflict.
Additionally, the oil and gas business is characterised by an interdependent society whose members highly value the bonds they have been steadily forming. As a result, adjudicating issues in an adversarial manner is unquestionably not the best course of action The ideal course of action is mediation since we want to resolve the conflict while preserving rather than severing the relationship between the parties. As with mediation, the result is mutually agreeable and represents a common ground between the parties, lowering the likelihood of further disagreements. Because so many significant individuals, organisations, and nations are engaged in the oil and gas industry’s operation, there is a great deal of confidential information there. Therefore, it is crucial to maintain the information’s confidentiality. In mediation, the guarantee of confidentiality has the effect of protecting trade secrets and reducing the likelihood of impending conflicts resulting from the information shared during the process, whereas confidentiality cannot be guaranteed in litigation. Finally, mediation focuses on the interests of the parties involved rather than their positions, it is more suited for settling disputes in the sector than litigation.
As an alternate method of resolving disputes, mediation has several benefits. There is every reason to believe that it will deliver better justice, more quickly, and more affordably. Instead of achieving “justice,” a litigation system’s ultimate purpose is to establish what is “right.” Litigation’s working style will cause significant issues since it is completely at odds with what this sector desires during a disagreement. Litigation is extremely slow, pricey, causes undesired publicity, is challenging, has inherent delays, and imposes large monetary and non-monetary expenditures. Contrarily, mediation offers quick, discreet, adaptable, and affordable extrajudicial conflict resolution in both civil and business matters through a procedure tailored to the demands of the parties. Additionally, mediation agreements are typically created to maintain a cordial and long-lasting connection between the parties.
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