Venture Global's public feud with its would-be LNG offtakers continues to intensify, raising questions about why its frustrated customers — which include some of the world's biggest gas producers — don't simply take their business elsewhere.
The answer is complicated, industry experts say, with the customers' long-term financial gains poised to outweigh any short-term cost. But there is one thing nearly everyone agrees on: the dispute will force changes in the way future LNG supply contracts are crafted.
In the latest acceleration of tensions, BP this week asked the Federal Energy Regulatory Commission (FERC) to require Venture Global to make public all information it has "improperly designated as privileged" with regard to the construction and commissioning of Calcasieu Pass LNG in Louisiana. A similar effort by Spain's Repsol failed.
BP, one of several offtakers still waiting for contracted cargoes from the 10 million ton per year (1.4 billion cubic feet per day) facility, wants Venture Global to reveal why it has repeatedly pushed back its commercial operations date even as it has shipped more than 200 cargoes, estimated to be worth at least $18 billion, into the global spot market.
BP accused Venture Global of "spying an opportunity for self-dealing in the current high LNG spot price climate" created by the Russia-Ukraine conflict. Shell, Repsol and others with Calcasieu Pass offtake contracts have accused the company of breach of contract.
Amid these allegations, Venture Global CEO Mike Sabel has shown increasing defiance, telling the Financial Times that "we are a catastrophe for them. This is a reaction to this competitive threat and they — as in any market — need to figure out how to be competitive."
Sabel also indicated that the commissioning for Venture Global's under-construction Plaquemines LNG project will have a lengthy commissioning process as well, doubling down on its strategy in the face of growing disdain. Sabel's office did not respond to Energy Intelligence's request for comment.
Staying Put
Yet even with their connections and deep pockets, these companies are choosing to fight Venture Global in hopes of forcing concessions rather than sign onto other existing or under-construction export facilities with access to similar markets.
"If it is such a bad deal for Shell, why are they not walking away from the contract?" one industry
source asked. "No one has talked about a divorce."
That is likely because the contracted prices tied to the 20-year contracts are "amazingly good" and not likely to be repeated, the source said, adding that long-term deals are still the best way to get ships on the water quickly. That dynamic is also keeping offtakers that have signed up for capacity on Venture Global's expansion project, CP2, on board.
Another industry source said the offtakers can simply jump ship by claiming a breach in the agreement, although others suggested that — because of murky contract terms — there may not even be a breach from which to walk away.
Regardless, legal experts tell Energy Intelligence that the feud is playing out in front of regulatory bodies without any power or inclination to resolve the issue. That suggests the offtakers are engaged in a campaign of public pressure on Venture Global to achieve what most expect to eventually become a negotiated settlement.
These experts said it is not unusual for almost all LNG project documents at FERC to be filed asprivileged, which casts doubt on this line of attack. One source also said requesting access could be taken as a lack of confidence in FERC staff.
Similarly, the many strident letters from Venture Global and its offtakers to the US-EU Task Force on Energy Security have had no bearing on the contractual issues at hand.
Reputational Risk?
One industry source said Venture Global's commercial operations delay and its public hostility toward its offtakers are "kind of a blemish to the industry as a whole," especially the US LNG sector.
Entrepreneurs "playing fast and loose with contracts" is not good because "we need the big guys to sign up for LNG offtake," the source warned. "The reputational effect splashes back on everybody."
But not everyone seems discouraged by Venture Global's behavior just yet. Customers of the 20 million ton/yr (2.8 Bcf/d) CP2 project have been writing letters to FERC this month asking it to expedite approval, arguing a critical need of those volumes in the global LNG market.
Germany's Sefe said a long-term agreement signed earlier this year for CP2 cargoes would be “vital” to the country's energy security, and noted that it has received three spot cargoes this year from Venture Global.
Japanese customers also weighed in. Jera, which this year signed a long-term deal for CP2 volumes, said it "would like to emphasize that it is of great importance and urgency that CP2 LNG receives the necessary approvals to commence construction." And Inpex told FERC it hoped that work on CP2 can start early next year.
Chinese offtakers polled by Energy Intelligence voiced concern about the ongoing dispute but so far have not proceeded with arbitration against Venture Global.
LNG Contracting's Future
However the Calcasieu Pass flap is resolved, several industry sources believe it will lead to significant changes in how LNG offtake contacts are written.
A US-based energy attorney told Energy Intelligence this week that "long-term buyers will want additional safeguards in the agreement. If I were a long-term buyer whose offtake is making the project bankable, I would definitely argue for a concept of deemed commencement date." That clause in effect would spell out "after X many cargoes have left that terminal as a whole (regardless of trains) the terminal will be deemed to have achieved commercial operations."
Gary Kruse of Washington, DC-based consultancy Arbo, which closely follows US energy regulatory matters, told Energy Intelligence that LNG contracts may begin looking more like pipeline precedent agreements.
Long-term contracts typically don't take effect until an entire pipeline is in service, but a precedent agreement governs what happens to any interim capacity that is created before that, Kruse explained. Anchor shippers can exercise a right of first refusal, meaning the pipeline can sell the interim capacity only if all anchor customers allow it.
"That’s how future LNG buyers will likely protect themselves," he predicted. "Commissioning cargoes would be offered first to the biggest buyer and, if that party refuses, on to the next one."