How to Negotiate Force Majeure and Credit Provisions in Gas Supply Agreements

Commercial natural gas supply agreements are, at their core, financial instruments. They allocate risk between buyer and seller over a multi-year period during which markets, operations, and unforeseen events will inevitably occur. Two of the most consequential provisions in any gas supply agreement — and two of the most commonly negotiated improperly — are the force majeure clause and the credit provisions.

Get these right, and you have a contract that protects your business when unexpected events occur while keeping your financial obligations fair and proportionate. Get them wrong, and you may find yourself trapped in an unworkable contract during exactly the circumstances when you most need relief.

This guide explains what force majeure and credit provisions are, how to negotiate both effectively, the most costly mistakes Illinois businesses make in these negotiations, and how to build a contract that truly protects your interests.

What Is Force Majeure in Gas Supply Agreements and Why It Could Make or Break Your Business

Definition and Purpose

Force majeure is a French phrase meaning "superior force" — events beyond the reasonable control of either party that make contract performance impossible or impractical. In natural gas supply agreements, a well-drafted force majeure clause excuses performance obligations during qualifying events without triggering the penalties or liabilities that would otherwise apply.

Without force majeure protections, a business caught in a natural disaster, government-mandated shutdown, or infrastructure failure could find itself liable for:

Early termination fees for volumes it can no longer take
Make-whole payments for supply costs the supplier incurred
Breach of contract damages

The force majeure clause is the safety valve that prevents extraordinary circumstances from becoming catastrophic liabilities.

What Force Majeure Typically Covers

Standard force majeure provisions typically include:

Natural disasters (floods, earthquakes, hurricanes, tornados)
Extreme weather events (beyond normal seasonal parameters)
Government actions (war, embargo, government-mandated shutdowns)
Pipeline force majeure events (pipeline failures, regulatory-mandated interruptions)
Acts of terrorism or sabotage
Epidemics or pandemics (coverage varies significantly by contract)

What Force Majeure Typically Does NOT Cover

Equally important is what force majeure doesn't protect against:

Economic hardship: Simply being unable to afford the contract price is generally not force majeure. Price increases, even extreme ones, don't excuse your purchase obligations.
Changes in market conditions: The commodity market moving against you doesn't trigger force majeure.
Operational decisions: Choosing to close, relocate, or restructure your business doesn't trigger force majeure unless accompanied by other qualifying events.
Foreseeable events: Events that were foreseeable at contract signing generally don't qualify. A business in a known flood zone cannot typically invoke flood-related force majeure if flooding was reasonably predictable.

The COVID-19 Lesson: Force Majeure Isn't Automatic

The COVID-19 pandemic generated enormous litigation over whether it triggered force majeure in commercial contracts. The outcomes were highly fact-specific, depending on:

Whether the contract's force majeure clause specifically included "pandemic" or "epidemic" language
Whether the specific impacts (government shutdown vs. voluntary closure) qualified under the contract language
Whether the party seeking force majeure relief gave adequate notice and mitigation efforts

The lesson: force majeure protection is only as strong as the specific language in your contract. Vague provisions provide little protection.

Step-by-Step Guide to Negotiating Airtight Force Majeure Clauses in Commercial Gas Contracts

Step 1: Understand the Supplier's Standard Language

Before proposing modifications, read the supplier's standard force majeure provision carefully. Identify:

What events are specifically named as qualifying force majeure?
Are "pandemic," "epidemic," or "government-mandated shutdown" included?
How is "impossibility of performance" defined? Does "impracticability" (significantly more expensive but not technically impossible) qualify?
What notice requirements must be met to invoke force majeure?
What obligations apply to the party invoking force majeure (mitigation requirements)?
How long can force majeure status continue before either party can terminate?

Step 2: Negotiate Broader Coverage for Your Operational Risks

Most supplier standard force majeure provisions are written to protect the supplier (from supply disruptions) rather than the customer (from demand reduction). Push to include events relevant to your operational risks:

Key additions to negotiate:

Government-mandated facility shutdowns: Explicitly include government orders requiring closure of your facility
Labor actions/strikes: If labor disputes could shut down your operations
Supply chain disruptions: For manufacturers, critical supply chain failures that shut down operations
Cyberattacks: Increasingly relevant for operations-disrupting ransomware events
Extended power outages: If your facility depends on electricity to operate gas-using equipment

Step 3: Negotiate Clear Notice Requirements

Force majeure clauses typically require prompt written notice to the other party. Negotiate:

Timing: "Prompt notice" is vague. Push for a specific timeframe (48–72 hours) while ensuring it's realistic for your circumstances
Form: Written notice requirements should accommodate email (not just physical mail), which is the practical reality of commercial communication
Content: The notice should need to describe the event and its expected duration, without requiring information you may not have immediately

Step 4: Address Mitigation Obligations

Both parties are typically required to take reasonable steps to mitigate the impact of force majeure events. Ensure the mitigation requirements are realistic:

"Reasonable commercial efforts" is better than "all efforts" or "best efforts" (the latter can be interpreted to require extreme measures)
Mitigation shouldn't require economic sacrifice beyond what's commercially reasonable
Your backup fuel capability (if any) may become relevant here — understand whether and how it's referenced

Step 5: Include Termination Rights for Extended Events

If force majeure persists for more than a defined period, either party should have the right to terminate without penalty. Common provisions:

30–90 day threshold (adjust based on your contract term and operational reality)
Termination without ETF liability for the invoking party
Mutual termination rights (not just supplier rights) for extended events

How to Protect Your Business with Strong Credit Provisions in Natural Gas Supply Agreements

Credit provisions govern the financial relationship between you and your supplier throughout the contract term. They answer questions like: What happens if your credit deteriorates? What if the supplier's does? What security can be required of each party?

The Standard Credit Provision Structure

Most commercial gas supply agreements include:

Initial Credit Evaluation: At contract signing, the supplier assesses your creditworthiness and determines whether security is required. The criteria and outcomes should be specified in the contract.

Ongoing Credit Monitoring: The supplier retains the right to periodically reassess your credit position. What triggers a reassessment? What notice do you receive? What remedies does the supplier have?

Security Requirements: If your credit deteriorates below defined thresholds, the supplier may require security (deposits, letters of credit). The contract should specify: what triggers the requirement, how the security amount is calculated, acceptable forms of security, and conditions for return.

Cross-Default Provisions: Whether default under one agreement (e.g., a related energy contract) can trigger default under this supply agreement.

Negotiating More Favorable Credit Terms for Your Business

1. Define Credit Triggers Precisely

Vague credit deterioration language ("material adverse change in financial position") gives the supplier maximum discretion to demand security whenever it's convenient. Push for specific, objective triggers:

Credit score below a specific threshold (e.g., "if Dun & Bradstreet Paydex score falls below 60")
Specific financial ratios (debt-to-equity, current ratio) if financial statements are required
Specific events (bankruptcy filing, levy, judgment in excess of defined amount)

2. Negotiate Reasonable Security Cure Periods

If a credit trigger is breached, you should have a reasonable cure period (typically 30 days) to post security or resolve the triggering event before the supplier can take adverse action. Many standard forms have very short cure periods (5–10 days) that should be extended.

3. Limit Security to Reasonable Amounts

Security requirements should be proportionate to actual exposure — typically 1–3 months of estimated billing. Push back on security demands disproportionate to your contract's financial scope.

4. Include Bilateral Credit Provisions

Your contract should also protect you if the supplier's financial position deteriorates. A well-negotiated contract includes:

Your right to request supplier financial information annually
Trigger events that allow you to demand supplier-side security
Your right to terminate (without ETF liability) if supplier credit falls below defined thresholds

This reciprocal structure is fair and increasingly expected in sophisticated commercial negotiations.

5. Annual Security Release

If security is required at contract inception due to credit concerns, negotiate an annual review provision that allows security to be reduced or returned as your credit history with the supplier establishes a track record of on-time payment.

Top Mistakes Illinois Businesses Make When Negotiating Gas Supply Contracts (And How to Avoid Them)

Mistake 1: Accepting "Market Standard" Without Reading It

Suppliers often present their standard form contracts with the implicit message that these are "market standard" terms that aren't negotiable. This is rarely true for commercial accounts. Almost all provisions are negotiable to some degree, especially for accounts with significant volume or strong credit.

Mistake 2: Focusing Only on Price

The rate per therm gets all the attention, but the force majeure and credit provisions may ultimately have more financial impact. A $0.02/therm rate saving over 24 months on 50,000 therms/year = $24,000. An inadequate force majeure clause in a pandemic scenario can result in hundreds of thousands in liability.

Mistake 3: Signing Without Legal Review for Large Contracts

For contracts with annual value exceeding $100,000, having legal counsel review the force majeure and credit provisions is a sound investment. Energy contract attorneys understand the specific risk allocations in these provisions and can identify issues a non-attorney might miss.

Mistake 4: Not Negotiating Supplier Credit Obligations

Businesses routinely accept supplier-favorable credit provisions without pushing for reciprocal protections. In a well-negotiated agreement, both parties' credit obligations are symmetrical.

Mistake 5: Not Asking for Examples of Force Majeure Invocations

Before signing, ask the supplier: "Can you provide an example of a situation in which you invoked force majeure, and how it was handled?" Their answer reveals both their practical approach to force majeure events and whether the contract language has ever been tested.

Frequently Asked Questions

Q: What is force majeure in a gas supply agreement? A: Force majeure is a contract provision that excuses performance obligations when extraordinary, unforeseeable events beyond either party's control make performance impossible or impractical. It prevents catastrophic liability during qualifying extraordinary events.

Q: Does Winter Storm Uri qualify as force majeure for Illinois gas supply contracts? A: This is contract-specific. Events like Uri may qualify if the contract includes extreme weather events and if the specific impacts on your facility meet the contract's qualifying criteria. Whether Uri-related claims were successful depended heavily on specific contract language.

Q: Can a supplier demand a security deposit from my business mid-contract? A: Yes, if the contract includes credit provision language allowing security demands upon credit deterioration. The specific triggers, amounts, and cure periods should be defined in your contract.

Q: What forms of security are typically acceptable in gas supply agreements? A: Cash deposits held by the supplier, irrevocable standby letters of credit from a creditworthy financial institution, performance bonds, and in some cases, parent company guarantees.

Q: How long should a force majeure event be allowed to continue before either party can terminate? A: Common commercial practice is 30–90 days. Shorter periods are more favorable to parties who want contract flexibility; longer periods are more favorable to parties seeking supply continuity.

Q: Is pandemic a standard force majeure event in natural gas supply agreements? A: Coverage varies significantly by contract. Post-COVID, many commercial contracts have been updated to explicitly include or exclude pandemic events. Review your specific contract language — don't assume it's covered.

Conclusion

Force majeure clauses and credit provisions are the provisions in your gas supply agreement that most directly protect your business when unexpected events occur. Negotiating them properly requires understanding what each provision does, where the risk allocation falls, and how to push for language that reflects your business's actual risk profile.

The investment in thorough contract negotiation — or in working with an advisor who brings negotiating experience to these discussions — pays dividends measured not in normal operating periods, but in the moments when something goes wrong and your contract language determines whether you have relief or catastrophic liability.

Natural Gas Advisors works with commercial clients to review contract terms, identify problematic provisions, and negotiate improved language with suppliers. Our licensed brokers have reviewed thousands of commercial gas contracts and understand the standards to push for.

Get a professional review of your gas supply contract before you sign. Contact Natural Gas Advisors at 833-264-7776 or request your free contract review.

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