Homework answers / question archive / Petroliam Nasional Bhd (Petronas) declared force majeure on supply to its liquefied natural gas (LNG) export facility due to a pipeline leak in October 2022, threatening to exacerbate a global fuel crunch right before winter

Petroliam Nasional Bhd (Petronas) declared force majeure on supply to its liquefied natural gas (LNG) export facility due to a pipeline leak in October 2022, threatening to exacerbate a global fuel crunch right before winter

Law

Share With

Petroliam Nasional Bhd (Petronas) declared force majeure on supply to its liquefied natural gas (LNG) export facility due to a pipeline leak in October 2022, threatening to exacerbate a global fuel crunch right before winter. The state-owned company triggered the legal clause due to a leak at the Sabah-Sarawak Gas Pipeline on Sept 21, Petronas said in response to Bloomberg queries. The pipeline feeds the Petronas LNG complex, which exports gas to customers across Asia.

Sheffield Company UK, which supplies LNG to Japan and South Korea, contracted with Petronus in 2021 to buy 8.1 billion cubic meters of gas in 2022. They also have entered into contracts with the Japanese and South Korean governments to supply 4 billion cubic meters of gas each in 2022. Nevertheless, it seems that they cannot perform the contract now, and the governments are threatening the Sheffield Company UK to cancel their regional license to do business in natural gas and also to initiate legal cause of actions.

Typically companies declare force majeure when an unforeseen event like a fire or natural disaster prevents them from complying with contractual obligations. With force majeure declared on supplies to the LNG plant, its likely that Petronas can now use the same clause to cancel shipments to overseas customers. However, any reduction in scheduled LNG shipments could trigger a scramble in Asia to find replacements and boost spot prices.

Competition between Asia and Europe for LNG has intensified since Russia invaded Ukraine and upended global energy markets. European natural gas futures jumped as much as 6.7% after the announcement. Petronas said it is exploring options to mitigate the impact of the pipeline leak and restore gas supply to the LNG facility.

However, Sheffield Company UK is not happy with the process of Petronus, and they want your advise on initiating legal proceedings against Petronus in Malaysian Courts. Advise the Sheffield Company UK.