Defining Investment Jargon: Force Majeure

A force majeure is a term you hear infrequently, but whose meaning is very important to time sensitive transactions. It just showed up in a Reuters article recently:

US Henry Hub – Natural gas trading and connection point declared a force majeure to account for a blown compressor effective January 21, 2009. Henry Hub is the natural gas futures delivery point for the New York Mercantile Exchange. It provides access to more than a dozen interstate and intrastate pipeline interconnects.

A force majeure literally means “superior force,” or an event to big to be reckoned with – A natural or unavoidable catastrophe. It is used generally as the definition of an “act of God” in terms of legal liability. When used in a contract, it excuses a party from legal liability or obligation arising from the event.

It is not intended to excuse poor performance, but provide a legal outlet should a company be unable to provide or receive goods and services because of an event or occurrence beyond their control.

The force majeure protected US Henry Hub from the legal liability of being unable to accept or distribute compressed gas.

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