The NAESB contract is a familiar element in the daily dealings between buyers and sellers of natural gas in the US, a standard form that serves as a useful draft for short-term and long-term gas supply agreements, just fill in the blanks in white and use it or adjust it until you have an agreement. Winter Storm Uri, the devastating freezing event that brought much of Texas to a frozen standstill and deadly blackout in February 2021, raised all kinds of questions about how to interpret the contract’s force majeure provisions, already that one of the main reasons for the mess. it was natural gas that was not reaching its power generation users. As a result, some electric industry participants are pushing NAESB to change the force majeure provisions with the goal of clarifying things and perhaps reducing their use to excuse no-gassing. But nothing is simple in the world of contracts and force majeure, as we discuss today on the RBN blog.
In January of last year we published a blog about how much of the voluminous civil litigation involving supply failures during Winter Storm Uri centered around the force majeure section of the Base Contract for the Purchase and Sale of Natural Gas, also known as “the NAESB Contract “, produced by the North American Energy Standards Board (NAESB). We imparted the very important wisdom that it is pronounced “Naysbee”, not “Nazbee” and that the process of changing any of the organization’s standards could be quite complicated and time consuming.
For those of you who have participated in NAESB, you know what we mean, and you know we are underestimating the complexity and time involved. However, participation in NAESB is well worth it for many in the energy industry, as it is where standard business practices for the gas and electric industry are formulated, then made into law by the Federal Commission of Energy Regulation (FERC). The NAESB contract is different in that it is not a proposed standard for a regulatory agency. Instead, it is a very convenient standard form that can be used for buying and selling natural gas on a short or long term basis; convenient as it already addresses all the points and pitfalls that used to take lawyers weeks to resolve between counterparties (especially regarding long-term agreements). Using the NAESB contract typically reduces the time required to commit to a buy and sell from a week or more to a few hours, especially in short-term deals. And by the way, no one has to use the standard contract – it’s just a tremendous time-saving tool available on the market (but you have to buy it to use it) and over time it’s been pretty much universally accepted.
