International Law Regime of Transboundary Pipelines

In recent years, technology has dramatically improved the distances that pipelines can carry hydrocarbons underwater and overland. As a result, the potential for exporting hydrocarbons from isolated production centres to consumers via pipeline has expanded. The number of long-distance pipelines has increased as a result of this and other, often geopolitical, factors.

Exporters, consumers, and the global energy industry have become increasingly and mutually dependent on the transportation of hydrocarbon products through long-distance pipelines. Indeed, it is estimated that over half of the world's oil production is now traded across at least one border. Many of these pipelines - sometimes referred to as "transboundary pipelines" - cross international frontiers, and as a result implicate the rules of public international law.

Which framework model to use

The international legal regime applicable to these transboundary pipelines is developing quickly to match the commercial practice. There are a number of existing international legal norms and treaties that deal with issues related to transboundary pipelines. Many of these sources of law arise from general public international law sources, and so are often not known to general commercial lawyers.

There are two basic models under public international law that can be used as the framework for a transboundary pipeline project: the Interconnector model and the Unified Project model. Which one is chosen can have significant legal implications for political and business relationships of the States and commercial players involved in such a project.

The Interconnector model is really two separate pipelines that are joined together at the common boundary between two States. Each State retains separate and distinct sovereignty over that part of the pipeline that lies within its territory. National laws on taxation, employment, health and safety and so on are applied separately by each country on "its" part of the pipeline. An analogy would be a highway that started in one country and continued into another country. The two interconnected pipelines are usually (but not necessarily) built by two separate entities. There is no requirement for an interstate agreement for an Interconnector model pipeline, although the commercial execution of such a project will be greatly simplified by a properly crafted agreement. The legal regime applicable will be the national laws of the relevant States, and any coordination can be accomplished by way of a host government agreement.

The Unified Project model is a true international pipeline. It is a single pipeline that straddles one or more boundaries. One single legal regime is created between the relevant States that applies to the entire length of the pipeline and all coordination problems (such as a common fiscal, safety and employment regime) are resolved by way of an IGA. This model has many other...