Jim Wetwiska and Gabriel Procaccini Quoted in Reorg Article on Force Majeure in LNG Transactions

Akin Gump litigation partner Jim Wetwiska and corporate partner Gabriel Procaccini have been quoted in the Reorg article “Force Majeure Provides Questionable Relief for LNG Buyers as Covid-19 Pandemic Seen as Outside Legal Definitions.” The article reports on the use of force majeure in liquefied natural gas (LNG) deals and whether it is justified in light of the changes in market conditions caused by the coronavirus pandemic.

Wetwiska said he is seeing “force majeure questions and issues surrounding what the market is going to look like for buyers to enter into long-term offtake agreements right now, as well as dealing with the pricing structure for new off-take contracts.” If force majeure is exercised, though, he said, “it’s really meant to address a short-term bump in the road, and not a permanent solution.”

Procaccini observed that some buyers “are likely going to have a difficult time getting out of their obligations.” He pointed to the tendency for many of the first wave of U.S. LNG sale and purchase agreements to be more favorable for sellers, especially given that those contracts were signed prior to the pandemic when the market was more favorable for them.

Still, the article reports that attempts to invoke force majeure this year could proceed, leading to immediate impacts.

“Many LNG projects are relatively highly levered, every balance sheet is being stress-tested and those projects that have higher cost structures than their peers are at greater risk today,” Procaccini said.