Calcasieu Chronicles — FERC Commission Caught in The Crossfire

Venture Global began processing LNG at its Calcasieu Pass (CP) plant in early 2022. It has sold more than 200 cargoes of the gas since, but it has yet to supply its eight long-term contract customers with any supply. The terminal has insisted it is still undergoing commissioning and therefore its long term contracts are not yet in force.

Because LNG project filings are notoriously unavailable or heavily redacted, it is quite difficult to assess the plant’s actual status (“Commissioning” or otherwise) and ultimately forecast an in-service date. (We detailed Arbo’s methodology in Demystifying LNG Terminal Timelines.)

Therefore, several of CP’s customers have asked FERC to make the filings before the Commission available to the public. FERC is the agency that must ultimately approve a project going into commercial service, and the shippers believe they can help FERC assess what needs to be done for that to occur — if they can get access to those documents. 

Repsol

In April, Repsol requested to intervene out of time in the FERC proceeding for the project, suggesting “Calcasieu Pass has and continues to export cargoes of LNG for its own account, claiming (falsely) that none of such cargoes have been delivered to its Project customers. FERC denied Repsol’s request in short order stating that the purpose of intervening in a Commission proceeding is to obtain “party status,” which entitles the intervenor to file a request for rehearing of any final order issued in the proceeding and to seek judicial review of such orders. But the time period to file a request for rehearing in the project’s Docket No. CP15-550-000 had already passed, so granting movant intervenor status would gain Repsol nothing.

Repsol sought rehearing of the order denying its intervention in June arguing that “the purpose of intervening is not so narrowly limited but extends to participation in the proceeding itself and access to information.” It stated, “granting the Motion would allow Repsol access to critical filings regarding commissioning and construction that Venture Global has filed as privileged, so that Repsol, as a long-term customer, can assess whether Venture Global is complying with the requirements of its 2019 authorization order and making accurate representations to the Commission and its staff regarding the status of the Project.”

The CP Terminal responded to this request characterizing Repsol’s request as an attempt to “exert extra-contractual commercial pressure on Calcasieu Pass by making unsubstantiated claims in a high visibility publicly-filed document.” It said “Calcasieu Pass always planned to incrementally start up the facility and produce LNG for export during construction and commissioning far in advance of even mechanical completion of the entire facility, as it has successfully done”, and that “Repsol has been aware of this approach from the very beginning of its contractual relationship with Calcasieu Pass.”

Repsol’s subsequent reply restated its argument that “there is an unprecedented set of circumstances – the continued export of cargos but a significant delay in reaching commercial operation” justifying its inquiry, and also that “Venture Global is filing confidential information with the Commission regarding construction that Repsol is currently unable to assess for itself.”

In July, FERC denied the request for rehearing but promised to respond to Repsol’s arguments in a future order. In October, the Commission authorized Phase 3 of the terminal project to begin operations despite acknowledging a few malfunctions occurred in commissioning demonstration tests. It did not respond at the time to Repsol’s request and still has not.

Repsol then asked the Department of Energy to revisit CP’s export approval of the 10 million metric tons per year in view of startup problems that have prevented Repsol from receiving its contracted LNG cargoes. DOE denied this request stating it "has no basis to second-guess FERC’s determinations concerning the operational status of the Project," and that disagreements with contract terms and performance are a matter for commercial parties to resolve.

BP

Another of Venture Global’s contracted customers, BP, took a slightly different tactic in its appeal to FERC — last week filing a formal complaint arguing the Commission failed to properly enforce its regulations, stating it “has found that VGCP has been capable of operating all production facilities reliably.” 

The letter went on to assert VGCP has continually “moved the goalposts” for its commencement date, and that “VGCP wants to deny the facility is producing reliably at or near nameplate capacity, and has been for over a year, as that certification would end VGCP’s charade with its foundation customers.” In other words, “VGCP has opted itself out of the regulatory framework for facilities in commercial operations simply by refusing to self-certify that it is, in fact, operating commercially.”

BP’s complaint also mentioned it had submitted a FOIA request for some of the information at issue.  

Will BP have more success than Repsol?

Ultimately, both offtakers have asked FERC to reduce the amount of CP material that is privileged. 

The BP complaint sets up a hypothetical about a new pipeline that acted like Venture Global in this scenario, asking: “Would the Commission deny either the affected customers or environmental interests the opportunity to see the data hidden by the new market entrant? Would the Commission deny either group of parties the opportunity to become parties to address these new and aberrant circumstances? Would the Commission simply permit the indefinite commissioning operation of the new market entrant on the theory that this is merely a commercial dispute of only passing interest?”

BP submits that the answer to each question is no, but we believe that the answer to all three questions with respect to the affected customers is almost certainly yes. FERC does not generally intervene in the commercial disputes between a pipeline and its customers, unless a tariff issue is involved, especially in cases like this one where the customers are sophisticated entities with the ability to hire legal counsel to protect their interests.

Is there any possible recourse?

The fact that these shippers are pursuing information through FERC suggests other options are limited in context of their SPAs — which is somewhat surprising.

A sophisticated customer would typically insist on independent access to documents related to the construction of the project; imagine signing a contract to lease part of a new building without ensuring the ability to review plans and progress reports.

Also relevant is the VG assertion (which the buyers seem to agree with) that the project was always intended to come online in phases. In almost any phased pipeline project, the ownership of “interim” capacity is dealt with in the precedent agreement. A fairly common way — and one that would have avoided this whole problem — would be to obligate the owner to make any “interim” service available to the anchor shippers on a prorated basis that they could either accept or reject. But, once they did so, they would be bound by that decision and rejected capacity would be offered to the other shippers. Only if there was capacity available after that process would the pipeline be allowed to sell it for its own account.

How will these complaints be resolved?

Since BP’s petition says “various customers of the Export Terminal, including BP, have initiated arbitration proceedings over VGCP’s failure to supply cargoes under the SPAs to its long-term offtake customers,” it would appear a lawsuit is unlikely due to a binding arbitration clause.

As for the prospects of fruitful arbitration, BP also indicated that its “considered judgment is that any further discussions with VGCP at this stage would be futile and could result in even further unwarranted impact on the commencement of service,” stating “BP and VGCP are at an impasse,” and “further efforts at alternative dispute resolution were not made prior to filing this Complaint.”