Force majeure and LNG contracts

Industry impact

Buyers in Asia have been left particularly exposed. In 2025, Asia absorbed 86% of the LNG transiting via Hormuz and, in the wake of the latest attacks on Qatar’s facilities in Ras Laffan on 18 March 2026 and JKM prices surging to over US$25/million Btu, more flexible destination LNG cargoes have been diverted from Europe to Asia to meet demand and arbitrage opportunities.

European supplies appear stable for now, as member states confirmed that there were no immediate security of supply risks. However, work has been halted on the Qatari North Field East expansion, a project that was estimated to add 33 million tpy to global supply. The combination of this and the spike in gas prices, which has seen TTF surging above €53/MWh (US$64/MWh) and intraday prices approaching €60 – €63/MWh, makes the task of rebuilding European reserves and maintaining a stable supply harder the longer the conflict continues.

Contractual pressure: Force majeure claims and disputes

The shutdown of production in key LNG facilities and disruption to shipping lanes are likely to trigger force majeure claims and disputes under LNG purchase agreements. Under English law sale and purchase agreements (SPAs), force majeure clauses typically require a party to satisfy a four-part test:

1. That the event occurred.
2. That the party was prevented, hindered, or delayed from performing.
3. Non-performance was due to circumstances beyond its control.
4. There were no reasonable steps available to avoid or mitigate the event.

However, simply having valid grounds to declare force majeure does not automatically entitle a party to relief, and parties seeking to declare force majeure must be cognisant of the procedural and substantive requirements to be entitled to relief.

First, complying with contractual notice requirements is critical – force majeure clauses typically require prompt notification, and depending on the language of the clause, failure to notify may bar the claim entirely or expose the party to damages.

Secondly, parties must take steps to mitigate the effects of the force majeure event. Most LNG SPAs contain arbitration clauses, and in the event of a dispute, tribunals will determine whether a party has adequately mitigated by reference to the prevailing factual circumstances. In the case of a portfolio seller that might arguably extend to an analysis as to whether it would have been obliged to procure alternative cargoes from elsewhere in its portfolio. In assessing this, tribunals are likely to consider a wide range of evidence, including the availability of alternative cargoes, price differentials between the contract price and spot market price, the seller’s credit limits, shipping slot availability, reload options, swap arrangements, and whether mitigation efforts would be commercially disproportionate in the context of the language of the clause – in particular, whether the clause requires the party to have been ‘prevented’ from performing (a higher threshold) or merely ‘hindered’ (a lower threshold), and whether the contract includes explicit exclusions for performing ‘at any cost’. In the case of a project-specific seller, the inquiry is likely to focus on repair and restoration timetables and equitable allocation of available supplies.

A critical question that is likely to arise before arbitral tribunals is where the boundary lies between genuine mitigation and the assumption of new or materially different commercial risk. Buyers will naturally argue for a broad mitigation obligation – one that requires the seller to source alternative supply wherever it is available – while sellers will resist any interpretation that effectively transforms a force majeure clause into an obligation to perform at any cost.

A further question concerns what happens to undelivered volumes. Some SPAs require sellers to deliver shortfalls as make-up quantities; others place the burden on buyers to take restoration quantities in subsequent years. Disagreements over liability for undelivered volumes may only emerge later. Under English law, buyers also face exposure under standard liability regimes: while the cost of replacement supply is typically recoverable as a direct loss, other losses may be excluded by contractual limitations of liability for indirect or consequential losses, although this would depend on what the parties reasonably contemplated at the time of contracting.

Where force majeure persists alongside high spot prices, buyers face mounting losses with each missed cargo, and contractual liability caps may offer sellers limited protection. If the economic dislocation continues into the medium-term, sellers may well consider whether the market conditions could trigger a price review, arguing that the elevation in spot prices demonstrates that existing contract prices are out of step with market realities. Conversely, buyers that secured favourable prices during a lower-price environment are likely to push back against any attempt to trigger a price review, arguing that the recent spike in prices is short-term and not indicative of a longer-lasting recalibration of the market. The resolution of these disputes will turn on the language of the price review clause and how arbitral tribunals assess whether market conditions have materially changed.

Conclusion

The current crisis has brought into focus the practical consequences of force majeure declarations in the LNG industry. The scope, effect and consequences of a force majeure event will depend on several factors including the contractual language and governing law, the commercial structure of the seller and the extent to which parties are protected by limitation and exclusion of liability regimes. In this volatile environment, sellers seeking force majeure relief must comply strictly with procedural and substantive requirements under their contracts, while buyers must take stock of their exposure, both to immediate supply losses and to longer-term consequences once the force majeure event subsides.

Written by James Barratt, Afolarin Awosika and Simon Machau, Lawyers at Vinson & Elkins.

Read the article online at: https://www.lngindustry.com/special-reports/23032026/force-majeure-and-lng-contracts/