In economic news, the phrase “Force Majeure” recurs whenever markets enter a state of confusion: a war disrupting routes, a major breakdown halting a factory, a sovereign decision restricting the movement of goods, or a sudden incident paralyzing production or shipping capabilities. This is why we have seen it mentioned in the liquefied natural gas (LNG) sector, as well as in heavy industry, as reported in news about aluminum companies or industrial entities that declared force majeure when they could not meet their obligations. The essence of the idea is simple:

Force Majeure is not a “choice” to stop supply, but a “legal notice” that reality has imposed an unavoidable halt.

But why should the general reader care about this legal term? Because its effect transcends the language of lawyers to the language of prices: when a major supplier says “I cannot deliver now,” the market hears not just a legal phrase, but also: uncertainty, and that alone is enough to raise anxiety and costs, and sometimes prices.

What is Force Majeure Simply?

Force Majeure is an extraordinary event beyond the control of the parties, usually unforeseen at the time of contract signing, that makes fulfilling the obligation impossible or impractical in a way that cannot be mitigated by reasonable means.
The key point here is the word “impossible”: not “more costly,” nor “harder,” but not executable during the event period.

Perhaps one of the most important terms we need to understand before delving into the core of this article:

  • Force Majeure: A clause/concept in contracts that is activated when an event occurs that makes execution impossible.
  • Notice: An official message to the other party announcing the onset of the situation and explaining its cause and effects.
  • Suspension of Obligation: A temporary halt of the obligation without considering the party as “in breach” during the event period (according to the terms of the contract).
  • Hardship: Execution is possible but has become excessively burdensome; here, the discussion is often about modification/negotiation rather than impossibility.

Why do companies in energy and industry declare it?

Because these sectors operate as an interconnected chain: Production → Operation → Logistics → Delivery. Any major break in one link of the chain can turn a delivery promise into an impossible promise.

The most common reasons include:

  1. Sudden and major disruption in a facility: Fire/explosion/major technical failure or a complete power outage that makes production or liquefaction impossible.
  2. Overwhelming logistical disruption: Closure of corridors, port stoppages, shipping disruptions, or insurance difficulties that make transport impossible or prohibited.
  3. Sovereign decisions/sanctions: Preventing exports or imports or prohibiting transactions that legally obstruct execution.
  4. Natural disasters: Leading to the shutdown of facilities, roads, or supply chains.

In heavy industry - such as aluminum - force majeure may arise when a critical, irreplaceable element is unavailable in the short term, such as long power outages or disruptions in raw material logistics or the shutdown of a critical operating facility, making the delivery of the final product impossible.

When is Force Majeure typically considered “acceptable”?

Not every crisis is force majeure. Typically, three practical criteria must be met:

  1. Unforeseen at the time of contracting: It was not among the usual risks that the parties implicitly accepted.
  2. Effectively makes execution impossible: There is no reasonable alternative solution that fulfills the obligation as agreed.
  3. External without fault or negligence: The declaring party did not cause it through negligence, breach, or clear mismanagement.

Often, important procedural requirements are added:

  • Prompt notice to the other party within the timeframe specified in the contract.
  • Evidence and details linking the event to the inability to deliver.
  • Efforts to mitigate damage: Such as partial supply, rerouting, or purchasing from the market if feasible and reasonable.

For example:

Imagine a liquefied natural gas (LNG) supply contract stipulating the provision of 3 monthly shipments over a quarter.

  • Capacity of a single shipment: 170,000 cubic meters of LNG.
  • Approximate heating value: 3.5 million MMBtu per shipment (a commonly used approximate figure in the industry, varying by specifications).
  • Contract price: $12 per MMBtu.

The approximate value of a single shipment = 3.5 million × 12 = $42 million.
If the liquefaction facility is disrupted for 20 days (a force majeure event) and it is no longer possible to load two shipments on time:

  • The client loses “the quantity on time,” forcing them to compensate from the spot market often at a higher price at the time of shipment.
  • The supplier - if the conditions are met - uses force majeure to temporarily suspend their obligation instead of immediately bearing penalties for non-delivery or massive compensation claims.

Here lies the crux: the market does not treat the news as a “legal term,” but as a temporal gap in supply. Therefore, prices sometimes rise quickly even before knowing the exact duration of the stoppage, because uncertainty is priced in.

How does Force Majeure transition from contract to market?

There are three rapid impact channels:

  1. Spot prices: Importers buy to immediately compensate for the shortage → upward pressure on prices.
  2. Insurance and shipping: Risks raise transportation and insurance costs → costs rise even if the global price remains stable.
  3. Corporate behavior: Other companies begin to reschedule maintenance, hedge inventory, and change sourcing → the wave of anxiety expands.

Which sectors might resort to declaring