Have producer countries begun to modify petroleum contract terms in response to climate change and energy transition risks?
To explore this, the author of this briefing reviewed 34 contracts and model contracts from 11 countries, signed or issued since the Paris Agreement. This review focused on stabilization, arbitration, and force majeure clauses.
Traditional clauses like stabilization, arbitration and force majeure should be reconsidered to address climate change risks and the need for climate policy action.
The Intergovernmental Panel on Climate Change has warned that global warming will exceed 1.5 and even 2 degrees Celsius without deep emissions cuts, while the International Energy Agency has proposed a stop to new development approvals for oil and gas fields as a pathway to net zero emissions. Continued petroleum development therefore comes with many risks for petroleum producers.
Those governments that nevertheless choose to pursue new petroleum projects to fulfil national development goals should assess and adapt their petroleum sector contracts and legal framework to address energy transition and climate change risks.