Current geopolitical tensions in the Gulf region have renewed concerns about the resilience of global energy and industrial supply chains, increasing the risk of disruption to key inputs such as carbon dioxide.
While the UK has recently agreed to invest £100 million to reopen a carbon dioxide production plant on Teesside as part of a contingency plan to help guard against supply risk, experience shows that shortages rarely arise from a single cause.
Instead, they tend to occur where several pressures coincide, including geopolitical instability, energy price volatility and planned maintenance at fertiliser and chemical production facilities from which CO₂ is captured as a by‑product.
CO₂ shortages can have wide‑ranging knock‑on effects, particularly for food and drink manufacturers. Carbon dioxide plays a critical role across the sector, including in the stunning of livestock during slaughter, modified‑atmosphere packaging to preserve food freshness and the production of carbonated beverages.
These risks are not theoretical. In 2018, a significant CO₂ shortage attracted widespread media attention amid concerns that food production and beer supplies could be disrupted during the summer World Cup.
Similar pressures re‑emerged in 2021, when surging wholesale gas prices increased production costs for fertiliser manufacturers and led to reduced CO₂ output.
Supply issues and cost pressures returned again in 2022, underlining how quickly market conditions can deteriorate.
Looking ahead, the 2026 World Cup may place additional seasonal demand on food and drink supply chains. Against this backdrop, manufacturers should remain alert to the legal and contractual risks posed by any future reduction in CO₂ availability and review their arrangements well in advance of further market disruption.
Our manufacturing lawyers explore the key legal and contractual risks arising from potential CO₂ shortages, and what manufacturers can do now to protect their supply chains and commercial position.
Force Majeure and CO₂ Shortages
Force majeure clauses are often the first provisions considered when CO₂ supply is disrupted.
These clauses typically excuse performance where a party is prevented, hindered or delayed from fulfilling its obligations due to events beyond its reasonable control.
Whether a CO₂ shortage qualifies as force majeure will depend entirely on the wording of the contract.
Manufacturers should consider whether force majeure clauses expressly cover events such as shortages of raw materials, supply chain interruptions, energy disruptions, or government intervention.
Geopolitical instability affecting energy supply may be relevant, but a general increase in cost or reduced availability will not automatically trigger relief.
Proper compliance with notice provisions is critical. Many clauses require prompt notification and ongoing updates, as well as reasonable steps to mitigate the effects of the disruptive event.
Failure to follow these requirements can invalidate reliance on force majeure and expose a party to claims for breach of contract.
Allocation, Suspension and Termination Rights
CO₂ supply agreements often contain allocation or rationing clauses, allowing suppliers to reduce deliveries across their customer base during periods of scarcity.
These clauses may require allocation on a pro rata or ‘fair and reasonable’ basis, although some give suppliers broad discretion, including the ability to prioritise certain customers or affiliates.
Manufacturers should review whether suppliers are entitled to do this and whether priority customers are given preferential treatment.
In some cases, prolonged force majeure may trigger contractual rights to suspend obligations or terminate the agreement altogether.
Understanding the timing and consequences of these provisions is essential, particularly where a manufacturer has limited alternative sources of supply.
Downstream Manufacturing Contracts
Disruption to CO₂ supply frequently affects a manufacturer’s ability to meet its own contractual commitments downstream.
This is particularly acute in the food and drink sector, where CO₂ plays a critical role in livestock processing, food preservation and beverage production.
Manufacturers should assess whether force majeure or relief provisions in customer contracts are aligned with those in their supply agreements.
A mismatch can leave businesses exposed, excused from performance by a supplier but still liable to customers.
Careful review of limitation-of-liability clauses, liquidated damages provisions, and termination rights is essential.
Frustration and Other Remedies
Where force majeure clauses do not apply, parties sometimes consider whether a contract has been frustrated.
Under English law, frustration is narrowly applied and requires performance to have become legally or physically impossible, rather than merely more difficult or expensive.
CO₂ shortages are unlikely to meet this threshold in most cases, particularly where alternative supply remains available, or the contract already allocates risk.
Other contractual remedies may include rights to renegotiate pricing, suspend minimum purchase obligations or adjust delivery schedules.
These will only be available where contracts are drafted to allow flexibility in response to external disruption.
Risk Management for the Manufacturing Sector
Manufacturing businesses are often particularly exposed due to reliance on continuous production processes and just‑in‑time supply chains.
Even short interruptions in CO₂ availability can result in production shutdowns, regulatory issues or reputational damage.
Against a backdrop of ongoing geopolitical uncertainty, manufacturers should proactively review supply contracts, stress test force majeure provisions and assess whether current arrangements provide sufficient protection.
Scenario planning remains particularly important in periods of heightened demand, such as major international sporting events, where consumer pressure on food and drink supply chains is intensified.
Conclusion
CO₂ shortages underline the importance of robust contractual drafting and a clear understanding of force majeure and related remedies.
For manufacturers, early review of contracts, alignment of upstream and downstream obligations and timely legal advice can make a significant difference when supply disruption occurs.
While contingency measures such as domestic production capacity provide some reassurance, contractual risk remains a central issue.
Addressing it in advance is key to protecting operational continuity and commercial relationships.
Contact Our Manufacturing Lawyers
If you would like advice on reviewing your supply contracts or managing the risks associated with CO₂ shortages, our manufacturing lawyers would be happy to help.
Please get in touch with our team to discuss how we can support your business.
0161 941 4000
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Alexia Dirgau
Solicitor Apprentice
Alexia joined Myerson in September 2022 as a solicitor apprentice after finishing her studies at Loreto Sixth Form College in Manchester.
Alexia has completed her first seat in our business administration department where her main responsibilities involved the general support of fee earners and PAs, followed by her second seat in marketing and a third as a Legal PA.
Alexia is currently undertaking one of her legal seats in our Dispute Resolution department.
Alexia will continue moving around the firm through the different departments as she progresses through her 6-year apprenticeship, whilst also studying Law part-time LLB at BPP University.
About Alexia Dirgau