Fuelling IP: Will Oil and Gas Price Shocks Heat or Cool the Energy IP Landscape?

Explosive volatility in energy prices

Recent developments in the Middle East have once again highlighted the fragility of global energy markets. Disruption to Liquified Natural Gas (LNG) and oil transit through the Straight of Hormuz, combined with damage to oil and gas processing  infrastructure and heightened geopolitical risk has contributed to a sharp rise in oil and gas prices, causing a significant impact on economies that remain heavily reliant on imported fossil fuels.

Much of the commentary surrounding these events has focused on the immediate economic and political consequences, as well as the implications for energy security. What is less frequently discussed is how periods of energy volatility influence innovation, and in turn, intellectual property strategy.

Historical trends

have shown that when oil prices decrease, stakeholders within the sector become more litigious as the increased competition driven by the lower prices rebalances the cost-benefit ratio of undertaking litigation.

With respect to patent filings, in times of low oil prices, some companies increase their IP budgets, directing capital that would have otherwise be used for commercial exploitation into increased patent filings, to secure increased market share and/or licencing revenue in the future. However, other companies, in the face of lower prices, reduce their IP budget to cut costs to maintain profitability.

The question naturally arises, can the converse of these trends be expected in the present times of high oil prices and high volatility?

In the medium term, patenting activity has generally been increasing in the sector irrespective of the oil price, with Europe’s public energy R&D intensity reaching approximately 0.08% of GDP. However, it may be expected that the windfall experienced by producers and suppliers that do not directly suffer difficulties due to the present geopolitical situation will allow such companies to direct additional capital into an expansion of their IP portfolios.

Indeed, previous oil price shocks have caused an expansion of further exploration, extraction and export infrastructure in response to windfall profits and reduced supply, which can hinder the adoption of renewables and other green technologies and reenforce existing modes of energy generation.

Focussing on innovation output for eco- and low-carbon technologies however, it has been shown that overall green innovation, measured by the total number, and the economic value, of green patents, increases in response to oil demand shocks[2]. However, interestingly, the same study concluded that oil producers slow down green innovating activity in response to oil demand shocks, displaying differing behaviour to the general trend.

New priorities

For countries that are particularly exposed to oil price shocks, including many energy-import-dependent economies in Europe and Asia, volatility acts as an incentive to diversify energy supply. In practice, this translates into increased focus on domestic renewable generation, energy storage, alternative fuels and, if feasible, political pressure to expand domestic oil and gas production. Over time, this shift drives new research and development priorities, reshaping where innovation happens and, in particular, which technologies attract investment.

It is therefore beneficial for energy innovators to consider how the present situation may inform their IP strategy. For example, the Philippines, Indonesia and Vietnam are each in a state of national emergency relating to the fuel crisis, with state intervention in the market and national carrier airlines cancelling flights due to a shortage of jet fuel. These countries also correspond to countries with rapidly-developing renewable energy sectors, which should stand to accelerate in growth in view of the present crisis.

These countries typically are not considered as part of a global IP portfolio for energy innovators, though patent protection in these countries can be efficiently obtained via the ASEAN Patent Examination Co-operation (ASPEC) program, which permits a common prosecution of an application for the participating countries in English.

Similarly, if the drive to reduce dependence on oil and gas causes an increase in competition between suppliers of alternative energy solutions, this sector may begin to see more contentious proceedings being instigated. It is therefore beneficial for interested parties to consider their IP strategy, for example their divisional/continuation procedure or UPC opt-out scheme in view of this.

These are merely examples of the type of strategic considerations that oil and gas, renewables, storage and grid innovators should consider when

Conclusion

Oil and gas price shocks may grab headlines for their immediate impact on geopolitics and the economy, but their longer term influence is subtle and structural. By shaping where innovation effort and capital is directed, they also shape the intellectual property landscape that underpins the energy transition. It is therefore imperative to design a strategy that accounts for and takes advantage of changes to the IP topography to ensure commercial success.

The HGF Energy team has many years of experience dealing with these types of questions and would be pleased to advise energy stakeholders on how to achieve their commercial objectives with a IP strategy that accounts for rapidly changing realities in the sector.

[1] Huq, N. (2016, March 7). With low oil prices, patent infringement cases among competitors on the rise. Patent, Trademark & Copyright Law Daily, 44(PTD). Bloomberg BNA

[2] Xiaolu Hu, Jing Yu, Angel Zhong, The asymmetric effects of oil price shocks on green innovation, Energy Economics, Volume 125, 2023,106890, https://doi.org/10.1016/j.eneco.2023.106890.

This article was prepared by Patent Attorney James Hitchen and Trainee Patent Attorney Joseph Todd.