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VIRUS OUTBREAK

France's Total rejects force majeure notice from Chinese LNG buyer

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"Some Chinese customers, at least one, are trying to use the coronavirus to say I have force majeure," Philippe Sauquet, head of Total's gas, renewables and power segment.

Singapore

FRENCH oil major Total has rejected a force majeure notice from a liquefied natural gas (LNG) buyer in China, the first global energy supplier to publicly push back against firms backing out of deals amid the coronavirus outbreak.

Concerns that Chinese companies could back out of contracts because of the coronavirus epidemic have slowed down spot crude oil and LNG sales into China, the world's top energy consumer, increasing global supplies and depressing prices of energy products.

"Some Chinese customers, at least one, are trying to use the coronavirus to say I have force majeure," Philippe Sauquet, head of Total's gas, renewables and power segment, said during the company's full-year results presentation on Thursday.

"We have received one force majeure that we have rejected." Companies invoke force majeure when they cannot meet their contractual obligations because of circumstances beyond their control.

Mr Sauquet did not disclose the name of the buyer Total rejected a force majeure notice from.

Reuters reported on Thursday that China National Offshore Oil Corporation (CNOOC), the country's biggest importer of liquefied natural gas (LNG), has declared force majeure on some prompt deliveries with at least three suppliers because of the rapid spread of the coronavirus, two sources said on Thursday.

Total is one of the biggest suppliers of LNG to CNOOC, industry sources said.

Last week, a Chinese international trade promotion agency said it would offer force majeure certificates to companies struggling with the fallout from the coronavirus epidemic to give to their overseas partners. Lawyers told Reuters that LNG contracts are typically governed by English law which spell out events that constitute a force majeure and some may include the epidemic clause. Serving the force majeure notice is the first step in a long-drawn out process, they said.

The onus is also on buyers to prove that they are not physically able to receive the cargo to demonstrate a force majeure. For instance, if there are port closures or if workers are unable to get to the ports due to the virus.

"Force majeure is usually aimed at dealing with events such as unforeseen operational outages, rather than changes in broader economic circumstances, such as LNG demand or exchange rates," said Rob Patterson, partner at law firm Haynes and Boone.

"It might be different if the coronavirus, or government shutdowns or regulations resulting from it, had the effect of causing operational constraints in the receiving terminal infrastructure, which prevent a buyer from receiving the LNG, but that would depend on the terms of the particular contract," he said.

Even before the outbreak of the virus, CNOOC had been offering to resell LNG cargoes because Chinese buyers have been struggling to shift high levels of stocks amid weak demand due to a slowing economy and a milder winter.

Prices of LNG supplied from long-term contracts are currently more than double the cost of spot cargoes, in an oversupplied market.

"There is a strong temptation from some long-term customers to try to play with the force majeure concept," Total's Mr Sauquet said.

"To say I cannot take my cargo under the long-term contract, but I would like to buy spot is contradictory." REUTERS