Back in 2002, Woodside Petroleum Limited (ASX: WPL) signed a landmark contract with China to supply up to $25 billion in gas over a 25-year period.
Touted as 'the biggest deal since Federation', this contract single-handedly lifted Australia's total exports to China by 10% and prompted Woodside chairman John Akehurst to state 'we have broken into the Chinese energy market'.
It was a pretty big deal at the time, but one that was in hindsight, perhaps negotiated too defensively by the Aussies.
The deal contained no clause for renegotiating gas prices in line with the market, which today sees Woodside shipping natural gas to China for US$3.80 per Million British Thermal Units (MMBtu), less than half of the market price at present.
This also meant Woodside was safeguarded against losses if the market collapsed, but for the last ten years it's been costing the company money.
Now, the Chinese are claiming that Woodside and related parties to the supply contract (including Shell, BP and Chevron, among others) are delaying shipments in order to initiate renegotiations over price.
Fairfax media reported that 8 scheduled gas shipments have apparently not arrived in China since 2011, and Australian officials were alerted to the dispute in December 2014.
This could possibly be due to the supplier claiming a 'force majeur' (the investing equivalent of an 'act of god') on shipments by stating that the cost of production exceeds the value of a shipment under the contract.
Woodside has denied that the contract is running at a loss, and has also previously ruled out renegotiating the contract, unless 'there's an opportunity to engage with our buyers on that… (in which case) I can assure you we'll do that'.
Given the high stakes of the contract and the money that Woodside is not making on gas it sells to China, investors can be sure that management would jump on any chance to renegotiate the deal.
It's even more likely that Chinese industry is not going to be interested in renegotiating their contract.
No-one likes to pay more for something they've already agreed a price on, and Chinese industry players have traditionally displayed high levels of suspicion towards Australia's iron miners, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) and the way they influence commodity markets.
There's no reason this suspicion couldn't carry over into gas contracts as well.
At the present time, Woodside shareholders have nothing to worry about, since this gas contract is already factored in to company earnings and has been for many years.
Furthermore, based on Woodside's margins on the North-West shelf business (as at half-year ended 30 June 2014), the contract does actually appear to be modestly profitable.
However there is the (very slim) potential for a modest upside thanks to contract renegotiation, or a somewhat higher chance of moderate to heavy costs thanks to arbitration, or the total loss of Chinese business if the North-West shelf consortium really manages to tick the Chinese government off.
Those are all unlikely outcomes, so for the moment it appears to be business as usual at Woodside Petroleum.