Force majeure claims could struggle as the EU moves to ban Russian gas, LNG: lawyers

European companies may face challenges using declarations of force majeure to get out of contractual commitments for Russian gas and LNG as the EU seeks to outlaw imports of both over the coming years, several trade lawyers told Platts, part of S&P Global Energy.

The EU banned all imports of Russian LNG from 2027 as part of its latest sanctions package against Moscow in October. The European Parliament and Council are negotiating a further legislative package that would also phase out Russian pipeline gas and oil.

Government officials have touted force majeure as a viable option for offtakers to navigate the looming trade restrictions.

In a statement following a committee vote adopting its position on the legislative ban in October, the European Parliament said: "Under the proposed rules, energy operators will be able to invoke 'force majeure' to terminate Russian gas import contracts, since the legally-binding prohibition on further imports, as provided by this new regulation, is explicitly defined as a sovereign act beyond their control."

A spokesperson for Germany's Federal Ministry for Economic Affairs and Energy similarly told Platts in November that the EU prohibitions should result in one offtaker, state-owned SEFE, "having to cease taking LNG" under its existing contract for volumes from Russia's Yamal LNG project and "being able to invoke force majeure."

'Considerable uncertainty'

Given the confidentiality of private contracts, none of the lawyers Platts spoke to could discuss specific agreements. Nevertheless, all of them cautioned against seeing any outcomes around force majeure as certain.

"It doesn't really matter what the EU's position is; it depends really on the specific contract terms and the terms of the force majeure clause within each specific contract," said Simon Sloane, a partner co-leading international arbitration work at the law firm Fieldfisher.

Mark Clarke, a partner who leads international arbitration work at Akin, another firm, raised similar points. "Force majeure clauses vary significantly from contract to contract, and much will depend upon the governing law of the contract in question," he said.

The context for force majeure can differ from one legal system to another. Under English law, for instance, force majeure is strictly a "creature of contract" that depends only on the language agreed by the parties. The Netherlands, on the other hand, has its own definition of force majeure in the Dutch Civil Code, according to Clarke.

"There is considerable uncertainty and a significant risk of disputes arising [around the EU's import bans], with the outcomes likely being different depending upon the jurisdictions and governing law in question," Clarke said.

Typically, contracts demand a force majeure event be something completely unpredictable that makes performing an agreement impossible and include a non-exhaustive list of such events, according to a third trade lawyer, who spoke on condition of anonymity.

"You don't tend to see sanctions referenced as a defined force majeure event, but obviously that is something that has changed in recent years," the third lawyer said.

Under that framing, a more flexible contract could actually hinder an offtaker from successfully declaring force majeure. For instance, if shipments under a deal are allowed to go outside the EU, it could be more difficult to argue the EU's restrictions make it literally impossible to execute the deal.

"Your argument, ironically, on force majeure would improve" with a less flexible contract, the third lawyer said.

An added complication, Clarke pointed out, is that force majeure typically suspends rather than terminates a contract. That means companies that are successful could still, in theory, be liable if laws shift again.

"If the war [between Russia and Ukraine] were to end and EU policy changes, in principle, the contracts would still be on foot," Clarke said.

Across the supply chain

The uncertainty around force majeure is all the more consequential because these considerations also apply to contracts between market participants within the EU.

Phillip Ashley, a partner with a third law firm, CMS, considered this a "huge problem" for anyone with operations contracted along the LNG and gas supply chain that could be involved in handling Russian molecules.

"Unless your contract specifically envisages where the gas is coming from and you can't take delivery of that specific gas, how are you going to call force majeure on the entire contract?" he said.

Sloane agreed. "There's going to be numerous different parties up and down the supply chain that are going to be impacted, undoubtedly," he said. "I don't think it's only going to be Russian parties and EU buyers or capacity providers in the frame."

Possibility to settle

There is also a possibility, however, for counterparties to settle rather than wade into a force majeure dispute. The lawyer speaking on condition of anonymity said force majeure arguments dependent on sanctions can "more often than not" be "problematic".

"I haven't seen that many of them fight," the lawyer said. "Parties tend to settle because they're so uncertain that the force majeure standards apply."

At the same time, though, those seeking to get out of commitments with counterparties connected to Russia could struggle to settle, CMS' Ashley said.

While he agreed most force majeure disputes are resolved in settlement, he stressed that those settlements often occur between parties that intend to have an ongoing relationship. That means they can blend a settlement across the terms of future deals. The EU's aim of ending all oil and gas trade with Russia complicates that.

"What I'm struggling to see here is how [a settlement] can be done in a circumstance where you are being prohibited from doing future trades," he said.

The nuances of force majeure mean that those disputes that reach arbitration could play out differently depending on the contracts, the governing laws, and the arbitrators rendering the decisions.

"You could see multiple different outcomes across lots of different cases," the lawyer speaking on condition of anonymity said.

Platts assessed the DES Northwest Europe LNG marker at $9.573/MMBtu on Nov. 25, down 0.7% day on day. The index is at its lowest level since May 2024.