On the 17th of October 2022,the Nigerian Liquefied Natural Gas (NLNG), the highest supplier of gas (Liquefied Petroleum Gas) in the Nigerian domestic market declared force majeure on gas supply.
NLNG stated that it was forced to declare forced majeure because all of its gas suppliers had declared force majeure due to high flood water levels in their operational areas that lead shut down of gas production which has caused significant disruption of gas supply to NLNG. The three (3)joint ventures provide gas to NLNG, Shell Petroleum Development Co. (SPDC), Total Exploration and Production Nigeria (TEPNG) and Nigerian Agip Oil Co. (NAOC).
The negative effect of the flooding in some part of the country is no longer news. The recent flooding has had a lot of devastating effect on the people living in the affected areas and by extension affected businesses including NLNG’s upstream gas suppliers and the NLNG.
Therefore, in line with its sales and purchase agreement, the NLNG declared force majeure.
A force Majeure is defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’
HOW FORCE MAJEURE WORKS
The nature of the doctrine of Force Majeure is such that it relieves a party from performing an obligation in a contract when the occurrence happens. It is usually included in a contractual agreement. An Example of force Majeure clause included in agreements between parties is as follows:
“A Party shall not be considered to be in default or breach of this Agreement, and shall be excused from performance or liability for damages to the other Party, if and to the extent it shall be delayed in or prevented from performing or carrying out any of the provisions of this Agreement, arising out of or from any act, omission, or circumstance by or in consequence of any act of God, labour, disturbance, sabotage, failure of contractors or suppliers of materials, act of the public enemy, war, invasion, insurrection, riot, fire, storm, flood,ice, earthquake, explosion, pandemic, epidemic, breakage or accident to machinery or equipment or any other cause or causes beyond such Party’s reasonable control
WHAT DOES THE DECLARATION OF FORCE MAJEURE MEAN FOR NLNG?
The declaration of Force Majeure by NLNG means that NLNG is removed from the obligation of gas supplies or other affected obligations and liability for the breach of such obligations in its sales and purchase agreement; provided that NLNG can prove that the flood affected their activities and prevented or made impractical for them to fulfil those obligations in the sales and purchase agreement.
If Force majeure is proved, then the law will protect the declaring party (which is NLNG in this instance) and no Liability if any will be made against NLNG.
Force majeure removes liability for catastrophic, unforeseen events that prevent participants from fulfilling obligations. When force majeure is declared the law allows the declaring party to waive its obligation as far it is proved by the declaring party. Force majeure is important in agreements because a party may be incapacitated by a circumstance that is beyond its control.