The Energy Crisis and Gas Supply Contracts - What You Need to Know

Escalation of the Middle East conflict and its impact on the energy market

The geopolitical situation in the Middle East has deteriorated dramatically, and its consequences are being felt with particular force on global energy markets. The attack on the Ras Laffan gas facility in Qatar - responsible for around one fifth of the world's supply of liquefied natural gas (LNG) - caused extensive damage, and according to Qatar's energy minister repairs could take from three to five years.

European gas futures rose by as much as 35 per cent in response, reaching more than twice their pre-conflict level. This is no longer a short-term disruption - analysts quoted by the Financial Times indicate that a two-month period before supplies resume is now an optimistic scenario, not a pessimistic one.

For Polish business owners, commodity importers and entities dependent on gas supplies, this means an urgent need to review their existing commercial contracts and examine the legal mechanisms that may protect their interests in the face of a prolonged supply shock.

QatarEnergy has announced that it must cancel long-term LNG supply contracts to Italy, Belgium, South Korea and China. Around 12.8 million tonnes of LNG per year will be removed from the market, which is close to 3 per cent of global supply. Europe faces a challenge it has not experienced since the crisis triggered by Russia's aggression against Ukraine.

Force majeure and hardship clauses - key legal concepts

In the context of Qatar terminating gas contracts, two fundamental institutions of the law of obligations come to the fore: force majeure and the doctrine of extraordinary change of circumstances (rebus sic stantibus). Their correct application may determine whether a business suffers losses running into millions or manages to protect its contractual position effectively.

Force majeure is an external event which cannot be foreseen or prevented and which makes it impossible to perform an obligation. Armed conflict and the destruction of energy infrastructure generally meet these criteria. However, the precise wording of the force majeure clause in the specific contract is crucial - not every contract defines it in the same way.

By contrast, Article 357¹ of the Polish Civil Code (the rebus sic stantibus clause) allows a court to modify or even terminate a contract where, owing to an extraordinary change of circumstances, performance would involve excessive difficulties or expose a party to grave loss. In a situation of sharply rising gas prices and disrupted supply chains, this mechanism takes on particular practical importance.

Business owners should pay attention to the following aspects of their contracts:

• The scope and definition of the force majeure clause - whether it covers armed conflicts and the destruction of infrastructure
• Notification obligations - the deadlines and form for notifying the counterparty of a force majeure event
• Hardship clauses - the possibility of renegotiating the terms of the contract
• The governing law of the contract - whether Polish, Qatari or other law applies
• Dispute resolution mechanisms - international arbitration or ordinary courts

Poland's situation - apparent security and real legal risks

A spokesperson for Poland's Ministry of Energy stated that Qatari LNG accounts for only 10 per cent of Poland's total gas supply, and that this volume can be gradually replaced from other sources. This is a reassuring message, but from a legal perspective the situation is more complex than the official rhetoric suggests.

First, even with a relatively small share of Qatari LNG in Poland's energy mix, a rise in gas prices on European markets of 35 per cent or more affects all market participants - regardless of the source of their supplies. Contracts indexed to spot prices or European benchmarks automatically become significantly more expensive.

Second, Poland uses the LNG terminal in Świnoujście, whose capacity is limited. Redirecting supplies from alternative sources takes time, as well as the availability of spare liquefaction capacity at exporters and of LNG tankers. In the transitional period there may be delays in the performance of contracts, which give rise to liability for damages.

Third, Polish energy-intensive businesses - chemical plants, steelworks, fertiliser producers - may be forced to reduce or halt production. In such a case, questions arise about contractual liability towards their own customers, the ability to rely on force majeure in dealings with clients, and the right to renegotiate long-term contracts.

Key legal actions for Polish companies

In the face of the crisis, Polish businesses should take specific steps without delay. A legal audit of existing contracts for gas and energy supply should be carried out with a view to protective clauses. It is necessary to analyse whether the rise in gas prices entitles a party to rely on an extraordinary change of circumstances within the meaning of Article 357¹ of the Civil Code. It is also worth securing evidence of the circumstances justifying reliance on force majeure and considering legal hedging - concluding addenda or new agreements which adapt the terms of contracts to the changed market reality.

The international perspective - arbitration and treaty law

QatarEnergy's termination of contracts opens the way to disputes resolved through international commercial arbitration. Most LNG supply contracts are subject to the arbitration rules of the ICC, the LCIA or institutions based in the Gulf states. For European buyers this means a need to act quickly - deadlines for bringing claims can be short, and securing evidence in a conflict zone is exceptionally difficult.

At state level, bilateral investment treaties (BITs) and the provisions of the Energy Charter Treaty are significant. Although Qatar is not a party to the latter, European investors holding assets in the Gulf region may seek protection under BITs concluded between their home states and the countries of the region.

It is worth stressing that the joint statement by Japan and five NATO states on their readiness to ensure safe transit through the Strait of Hormuz is, for now, merely declaratory. The absence of concrete enforcement mechanisms means that business owners cannot base their strategies on the assumption that freedom of navigation will be restored quickly.

From a legal perspective, the situation around the Strait of Hormuz also engages the provisions of the United Nations Convention on the Law of the Sea (UNCLOS), which guarantee the right of transit through international straits. A breach of this right by any state gives rise to responsibility under public international law, although in practice pursuing claims during an armed conflict is a lengthy process.

How to protect your interests - summary and recommendations

The current energy crisis is not merely a geopolitical problem - it is a real legal and business challenge for thousands of Polish businesses. Rising gas prices, the risk of contract terminations and uncertainty over delivery dates call for professional legal support.

The most important steps to take now:

1. Contract review - checking force majeure and hardship clauses and pricing mechanisms
2. Claims analysis - assessing the possibility of seeking compensation from counterparties or insurers
3. Renegotiation of terms - using legal instruments to adapt contracts to the new market situation
4. Securing evidence - documenting the circumstances justifying reliance on extraordinary events
5. Alternative supply strategy - the legal aspects of diversifying energy sources

The energy crisis caused by the conflict in the Middle East will have long-term consequences. Business owners who secure their interests legally in good time will be in a much better position than those who react only once they receive a notice of termination or a demand for payment.

Do you need a professional analysis of your gas or energy supply contracts? Contact our firm - our specialists in energy law and international trade will help you protect your company's interests in the face of the growing energy crisis. Do not wait for the problem to knock on your door.