Rethinking the Damages Counterfactual in Long-Term Gas Arbitration
THE AUTHOR:
Dr. Ahmed Gamal Eldin Hamed Ibrahim, Judge, Egyptian Judiciary
Imagine, in deliberately simple terms, a twenty-year gas supply contract. The contractual price is 30. The seller stops delivering. The buyer replaces the missing gas at 100. The apparent damages calculation is immediate: 100 minus 30 — a loss of 70 per unit.
Now add one clause.
Six months after the breach, either party would have been entitled to reopen the price. Market conditions had moved sharply, the contractual trigger would likely have been met, and a review might reasonably have moved the contract price to 60.
After that point, is the buyer’s loss still 70?
Or has the damages model silently frozen a price that the contract itself was designed to change?
Gas-price review and damages quantification are usually discussed as neighboring subjects. The first asks how a long-term contract adapts to market change; the second asks what financial position the claimant would have occupied but for the breach. Yet in a long-term gas or LNG contract, those inquiries may converge into one question:
What price would the contract itself have produced in the counterfactual world?
The answer should be proved, not assumed.
The Price That Never Existed
Long-term gas and LNG contracts are not static instruments. Their pricing may be linked to oil products, gas hubs, or hybrid indices, while review clauses may permit periodic or trigger-based reopening. Recent 2026 commentary describes gas price-review arbitrations as some of the highest-value commercial disputes today (See, Squire Patton Boggs, ‘From Europe to Asia: how international arbitration is reshaping the global natural gas price war’, GAR, 21 May 2026), while recent damages analysis emphasizes careful construction of the factual and “but-for” cases in volatile gas markets (See, Frontier Economics, ‘Damages in gas and electricity arbitrations’, GAR, 29 May 2026).
Suppose again that the replacement price is 100 and the pre-breach contract price is 30. Projecting 30 throughout a multi-year damages period is convenient. But if, absent the breach, a contractual review would probably have become available and produced a materially different price, the model may no longer be valuing the bargain actually lost.
The point cuts both ways. A buyer should not receive damages calculated against an artificially low price that would probably have risen. Nor should a seller claim future lost revenues at an artificially high price that the buyer would probably have succeeded in reducing.
The issue is therefore not pro-buyer or pro-seller. It is one of counterfactual accuracy.
Gas price review and damages counterfactuals are well-established subjects of analysis. Their intersection raises a distinct question deserving closer attention. That overlap can be described as a Dynamic Price Counterfactual: where damages require valuation of the performance that would have occurred but for the breach, the tribunal should ask whether the price-review mechanism itself would probably have changed that performance.
Which Contract Belongs in the Counterfactual?
The starting point is not the economist’s model. It is the contract and the applicable law.
A tribunal cannot invoke an abstract compensatory principle to displace an agreed damages regime, valuation rule, or allocation of risk. The UK Supreme Court’s judgment of 22 July 2026 in Great Asia Maritime Ltd v. Orion Shipping and Trading LLC [2026] UKSC 23 is a useful recent reminder. Although it concerned the Norwegian Saleform, the Court focused on the wording of an express compensation clause while reaffirming the fundamental compensatory principle and Bunge v. Nidera’s endorsement of The Golden Victory.
Bunge is especially instructive for the narrower proposition relevant here. Subject to the contractual framework, subsequent events may matter where they show that the performance allegedly lost would have been reduced or eliminated even without the breach. English law does not supply a universal rule for gas arbitration; the narrower point is that damages should remain connected to the contractual benefit actually lost.
The same caution appears in transnational instruments. Under the UNIDROIT Principles 2016, Article 7.4.2 links full compensation to harm caused by non-performance, while Article 7.4.3 requires future harm to be established with a reasonable degree of certainty. Together they warn against both extremes: ignoring a probable contractual adjustment and inventing one through speculation.
The CISG also deserves attention. Natural-gas sales can fall within the Convention: the 2022 Gasum Oy v. Gazprom Export award applied the CISG, and the Naftogaz v. Gazprom I (Gas Sales Arbitration) likewise applied it in a long-term gas-sales dispute. Articles 74-76 provide different damages routes. They do not solve the present problem automatically. But they reinforce the prior question: before an expert compares market and contract prices, which legally relevant contract price belongs in the model?
The thesis must therefore remain narrow. Where the governing law and contract require a but-for valuation of future performance, and do not prescribe a different fixed measure, the tribunal should not automatically assume that the last pre-breach price would have remained unchanged if the contract contained an operative mechanism capable of altering it.
The Arbitration That Never Happened
The obvious objection is speculation.
Once a hypothetical price review enters the counterfactual, the tribunal may appear to conduct an arbitration inside the arbitration. Would a review trigger have arisen? Would a party have served notice? Would negotiations have succeeded? What price would another decision-maker have selected, and from what date?
A four-stage evidentiary framework can discipline the inquiry.
- First, Counterfactual Trigger: would the contractual review trigger have arisen in the world without the breach? If the breach itself contributed to the market movement relied upon as the trigger, that effect must be removed. Otherwise, the consequences of the breach are used circularly to prove what would have happened had the breach never occurred.
- Second, Probable Invocation: is there persuasive evidence that the relevant party would actually have exercised the review right? Prior practice, contemporaneous correspondence, and economic incentives may matter. A contractual option is not automatically a counterfactual event.
- Third, Effective Timing: when would any revised price realistically have taken effect? Notice periods, negotiations, review dates, and rules on retroactivity may materially alter the damages period.
- Fourth, Probable Adjustment: is there a sufficiently reliable basis for the direction and magnitude of the price change? The tribunal need not manufacture a fictional price to the last decimal place. A range or probability-weighted assessment may be more defensible than false precision.
This structure corresponds with the architecture commonly found in LNG price-review clauses: trigger, review process, negotiations, dispute-resolution machinery, and rules governing application of the revised price. The jurisdictional dimension is illustrated by Naftogaz v. Gazprom I, where the tribunal addressed its authority to adjust price under the parties’ price-revision clause.
A jurisdictional complication remains. Some contracts reserve price review to a separate tribunal, expert determination, or bespoke mechanism. A damages tribunal must then distinguish between deciding the hypothetical price-review dispute – which may exceed its mandate – and assessing, for quantum purposes, the probability and economic effect of what would have occurred in the counterfactual world.
That line may be difficult to draw, but difficulty does not justify replacing probability with an assumption of permanence.
A Dynamic Counterfactual
Recent gas disputes show why this is practical rather than theoretical. On 1 July 2025, an ad hoc tribunal in Stockholm issued a partial award in the ORLEN/Gazprom proceedings under the Yamal contract. According to ORLEN’s official disclosure, the tribunal established a new, higher contract price effective from 1 January 2018 and modified the pricing conditions through January 2021, the earliest potential date for a later adjustment under subsequent price-review claims. In its preliminary assessment, ORLEN estimated that the retroactive adjustment could result in approximately US$290 million payable by ORLEN; the tribunal did not determine the amount or method of settlement.
The significance here is temporal, not partisan.
The case demonstrates that the “contract price” can be a path through time rather than a single frozen number.
At a different scale, Uniper announced in June 2024 that an arbitral tribunal had awarded it more than EUR 13 billion for gas volumes not supplied by Gazprom Export since mid-2022. Some underlying contracts would otherwise have continued into the mid-2030s. The detailed quantum reasoning is not public, so no inference should be drawn as to how the tribunal treated any price-review mechanism. The case matters here only for scale.
When non-delivery losses extend across years of exceptional volatility, a seemingly technical assumption about the counterfactual contract price can move very large sums. Recent 2026 damages literature accordingly treats the factual/counterfactual divide, the ex ante/ex post perspective, and contract-specific delivery characteristics as central to gas quantification (See above, Frontier Economics).
That makes one assumption particularly dangerous:
that breach freezes the contract at the last observed price.
It may not.
The tribunal is not being asked to rewrite the bargain.
It is being asked to value the bargain that would have performed.
If the evidence shows that performance would probably have included a contractual price review, ignoring that mechanism may be as artificial as assuming that the review would certainly have produced a particular result.
A sound counterfactual should preserve both the rights and the risks of the bargain. It should ask not only whether the gas would have been delivered, but on what contractual price path it would probably have been delivered.
In long-term gas arbitration, the hardest price to determine may therefore be neither the spot price nor the replacement price.
It may be the price that never existed – but would have.
