The increasing divergence between oil prices and spot liquefied natural gas (LNG) prices has created strong incentives for Asian buyers under long-term LNG contracts to seek price adjustment and other forms of LNG contract flexibility such as diversion rights and quantity flex. While the commercial realities of a buyer’s market and low Henry Hub pricing has led to many ‘buyer friendly’ changes to contract terms, force majeure (FM) clauses have remained relatively unchanged and often follow long-established forms. However, the current Coronavirus outbreak has begun to test the limits of those clauses with reports of some Chinese buyers claiming FM on the basis that the outbreak has prevented the buyer’s performance of the LNG contracts altogether. There are also reports of sellers rejecting such claims.

Therefore, what is FM and what are the implications for Asian buyers and sellers of LNG?

What is FM?

Under English law (a common choice for long-term Asian LNG contracts), FM is a form of relief that is available only if and to the extent provided in the relevant contract. Therefore, much depends on the specific terms of each FM clause.

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