The pending wave of expansion and newbuild petrochemical projects will create new jobs and boost tax revenue for local governments, but chemical companies should also expect an increase in legal disputes arising from these capital investments, according to Kevin Jacobs, a partner in the Litigation Department of the Houston-based law firm Baker Botts L.L.P.
"This is an incredibly exciting time for both the energy industry – helping to increase energy resources and independence in the United States – and the petrochemical industry – making chemical manufacturing once again one of the main engines of American manufacturing," said Jacobs. "Finding ways to keep disputes from inhibiting that growth and to find solutions that encourage economic activity will be important for all stakeholders as we move forward."
Competition among market players for existing infrastructure capacity, calls for new regulations by government officials, collective nuisance claims by neighbors and government agencies and traditional commercial and tort litigation should drive most of these new disputes, predicted Jacobs, adding that a definitive uptick in disputes is still likely a few years away.
"Because a number of the expansions and new developments have yet to begin or be completed, we have not yet seen a sharp rise in the number of disputes," he said. "There certainly have been some disputes relating to some construction projects and development plans, but generally speaking the seeds for future disputes are still being planted."
[Attorney: New Petchem Projects Planting Seeds for More Legal Disputes]
In a recent interview with DownstreamToday, Jacobs elaborated on the anticipated surge in petrochemical legal disputes. Read on for his insights.
DownstreamToday: What are some examples of the types of disputes that petrochemical manufacturers commonly encounter, and how are they usually resolved?
Kevin Jacobs: The petrochemical industry is involved in a broad array of disputes that one would expect from an industry that has a large workforce and that touches so much economic activity – both domestically and internationally. These clients therefore become involved in commercial litigation and arbitrations with business partners, construction disputes, personal injury and toxic tort claims by employees, contractors and neighbors, Employee Retirement Income Security Act (ERISA) claims, and regulatory disputes involving environmental issues such as land use, water use and air permitting. As with any industry, the majority of these disputes are resolved through negotiations, but some number are decided by summary adjudications or through final decision before a regulatory agency, a judge, a jury or an arbitral panel.
DownstreamToday: What are some steps that petrochemical manufacturers can take to mitigate the risk of encountering such disputes in the first place?
Jacobs: Good planning, good execution and good operations are the first three steps – and the primary steps – to avoid having disputes at all, and the industry continues to make improvements in these areas to avoid having disputes to begin with. But, some number of disputes will happen, and once you know you have a dispute, early action to investigate the dispute, meet with the employees involved, and gather documents is very important. There is just no substitute to early preparation.
DownstreamToday: With some exceptions, the United States' petrochemical facilities are largely clustered along the Gulf Coast. However, the abundant, inexpensive natural gas feedstocks helping to justify new petrochemical capacity are increasingly coming from shale plays outside the region such as the Marcellus and the Utica. How does this longer supply chain influence the types of disputes that manufacturers may encounter and their means of resolving them?
Jacobs: We will see several consequences from this. One will be a renewed interest in developing or expanding petrochemical capacity in the Midwest and the East Coast, with Philadelphia being a good example. Second, with longer supply chains to the Gulf Coast's petrochemical facilities, we will see renewed focus on pipeline projects to bring that gas to these facilities – the regulatory and condemnation requirements to build those pipelines, as well as disputes between shippers and carriers and between shippers on those pipelines.