Shell, BP seek US and EU intervention in dispute with Venture Global LNG

Energy giants Shell and BP have asked the U.S.-EU Task Force on Energy Security to intervene in a dispute with Venture Global LNG over the launch of commercial operations at the latter’s Calcasieu Pass plant.

Calcasieu Pass produced its first LNG on January 19, 2022, moving from FID to LNG production in 29 months, and the first commissioning cargo left the facility on March 1.

Venture Global said in March this year it has shipped 128 commissioning cargoes from its Calcasieu Pass plant in Louisiana since the first quarter of last year, mostly to Europe.

The company also recently received approval from the US FERC to put in service liquefaction blocks 7-9 at its Calcasieu Pass plant.

All nine blocks of two liquefaction units each will now be in service at the facility.

However, the US firm has not yet declared commercial operations at the facility.

The plant has a capacity to produce 10 mtpa of LNG or 1.3 billion cubic feet per day (Bcf/d).

Long-term customers of the facility include Shell, BP, Edison, Repsol, Galp, and PGNiG.

Edison previously said it launched arbitration proceedings in May this year against Venture Global at the LCIA in London, for the failure of LNG deliveries from the Calcasieu Pass plant.

Besides Edison, BP and Shell also reportedly launched arbitration proceedings against Venture Global regarding the delay in LNG cargo deliveries.

Shell’s letter

President of the European Commission, Ursula von der Leyen, and US President, Joe Biden, established the US-EU Task Force on Energy Security in 2022 to boost imports of US LNG to EU and reduce reliance on Russian pipeline gas.

Shell Singapore wrote a letter to the Task Force on October 27 to “express our serious concerns regarding Venture Global’s ongoing misconduct and its impact on our ability to meet critical long-term energy supply needs in European markets,” the firm said.

“In particular, Venture Global’s refusal to place the facility into commercial operation, and begin delivering LNG to Shell and the facility’s other foundation customers pursuant to their long-term supply agreements, will have detrimental consequences on the urgent policy priorities of the US-EU Task Force on Energy Security,” Shell said in the letter signed by Steve Hill, executive VP, Shell Energy.

With long-term purchase commitments from Shell and the other foundation customers in hand, Venture Global was able to fundraise, permit, execute, and construct the project in record time, achieving first cargo in March 2022, more than 20 months ago, the company said.

“Despite Shell’s repeated requests, however, Venture Global has refused to honor the very commitments that undergirded its project in the first place, and declare the start of commercial operations at the facility,” it said.

“Even though publicly available export data confirms that the facility has for many months been reliably producing LNG at nameplate capacity, Venture Global denies that the facility is in commercial operation and refuses to sell any LNG to its foundation customers at contracted prices and volumes for onward delivery to their European buyers,” Shell said.

About $18 billion

According to Shell, export data from the US Department of Energy and Kpler indicate that in the year between October 1 , 2022 and September 30, 2023, Venture Global exported 9.96 million of tonnes LNG from the Calcasieu Pass facility.

“Instead, Venture Global has opted to itself sell a steady and continuous flow of “commissioning” cargoes of LNG, to whatever global destinations offer the highest spot market prices, reaping undue revenues of approximately $18 billion, if not more,” Shell said.

“Indeed, the Calcasieu Pass facility’s so-called “commissioning” period defies industry standard,” the company said.

“As Eurogas recently reported in a letter to the European Commission, the nearly 600-day duration of the facility’s “commissioning” period, and the over 200 “commissioning” cargoes exported from the facility during that period, far outstrip the corresponding figures for six other comparable US LNG export facilities,” Shell said.

Shell said that, in all that time, Venture Global has “categorically refused any and all performance of its long-term supply agreements.”

“Moreover, Venture Global’s excuse for this refusal to perform does not withstand scrutiny,” the firm said.

“Force majeure”

“Although Venture Global has declared “force majeure” on grounds that the facility’s power island is in purported need of repair, regular exports from the facility have nonetheless continued unabated throughout the entire period of claimed “force majeure,” Shell said.

“Indeed, Venture Global even openly affirmed to its principal federal regulator that it will “continue to produce commissioning cargoes of LNG for export” notwithstanding the alleged issues underlying the “force majeure” claim,” Shell said.

“If Venture Global genuinely believed that technical issues prevented commercial operation at Calcasieu Pass, then it would have devoted the necessary resources to promptly rectify those issues so as to start delivering on its long-term contracts,” Shell said.

Instead, Venture Global has “apparently diverted its focus and resources to completing a separate, unrelated export project, and has demonstrated no similar sense of urgency or priority in getting Calcasieu Pass LNG cargoes, at contracted long-term prices and volumes, to gas-strapped European markets,” Shell said.

Construction and commissioning work at the facility completed

The company said that Venture Global’s conduct is “also inconsistent with industry and regulatory reports confirming that construction and commissioning work at the facility have long since been completed.”

“It was only this month, for example, that Venture Global sought permission to place the last three liquefaction blocks at the facility into service, even though it concedes that “commissioning operations” with respect to those blocks were completed in July 2022,” Shell said.

“Venture Global fails to explain why it waited over a year to place the remaining liquefaction blocks into service, all the while continuing to sell LNG wherever the spot market price is steepest, without regard to the European gas crisis or the shared policy prerogatives of the European Union and United States to address that crisis,” Shell said.

“In sum, the disparity between the long-term commitments that undergirded Venture Global’s Calcasieu Pass project and Venture Global’s refusal to perform them cannot be
overstated,” Shell said.

“If the United States fails to meet its promise of serving as a reliable and affordable supplier of LNG to European buyers, then European states, industries, and ultimately consumers
will only continue to suffer the adverse impacts of constrained supply and price volatility,” Shell said.

“We urge the Task Force to call on Venture Global to cease its unjustifiable and damaging prolongation of “commissioning” at the Calcasieu Pass facility and immediately begin to perform its long-term supply agreement,” Shell concluded.

BP, Edison

Edison also wrote a letter to the Task Force on October 26, while BP Gas Marketing sent a letter on October 30.

BP said in the letter signed by Carol Howle, executive VP, trading and shipping, that the company concurs with both Shell and Edison’s letters, which “underscore the ways in which Venture Global, by reneguing on its clear contractual commitments, is undermining the market’s confidence in the reliability of American LNG supply at a critical time for Europe.”

“As cited in Edison’s letter, 200 cargoes have been sold to the short-term market during the so-called “commissioning” period of the facility, far in excess of the norm. None of these cargoes have been delivered under the long-term contracts entered into by BP and other foundation customers,” it said.

“Venture Global’s conduct has shaken confidence in the trustworthiness of American LNG suppliers at a critical time,” BP said.

“It appears that Venture Global is attempting to avoid the regulatory framework that applies to similarly situated LNG terminals in the US exporting reliably at or near nameplate capacity by claiming that repairs scheduled to be completed while continuing in commercial operations should be classified as “commissioning,” BP said.

“BP is one of several industry participants that remains keenly interested in whether Venture Global will be permitted to continue full commercial operations, at or above nameplate capacity, under the standards applicable to facilities under construction and without beginning the time for the facility’s long-term export authorization,” the company said.

“We invite you to consider the harm that this situation is already having on the stability and growth of the LNG industry, both in the Atlantic and globally, and request your support in promoting confidence in the integrity of contractual relations and international norms of business,” BP said.

Venture Global’s response

Venture Global said in a response to these letters dated November 10 that “these communications falsely claim that Venture Global is engaging in misconduct and refusing to honor its contractual commitments to its long-term customers in order to engage in profiteering.”

The firm said this request for interference in the administration of binding and confidential bilateral agreements between commercial entities is “outrageous”.

“It is nothing more than the latest in a series of unsuccessful attempts to bully an industry newcomer into waiving its contractual rights in order to increase their own profits beyond recent record-highs,” Venture Global said.

The letters imply that Venture Global is “undermining confidence” in the US LNG industry, it said.

“To the contrary, our company has been one of the few US (and global) exporters who have successfully financed, commercialized, and built our projects. In short, we have delivered where others have failed, which has been integral to supporting the important work of the Task Force to increase the supply of LNG flowing from the United States,” it said.

“As we have explained to both US and EU officials, our ability to produce LNG early while we incrementally commission the rest of our facility allowed the US to send 10 percent more LNG to Europe, a significant contribution to President Biden’s pledge to the EU,” the company said.

Calcasieu Pass accounts for about 14 bcm at its nameplate and this is nearly the entire 15 bcm that President Biden pledged, Venture Global said.

US Department of Energy data confirms that around 70 percent of all cargoes produced and exported by Venture Global have been delivered into Europe and sold to “multiple” counterparties, including three of its six long-term customers, it said.

BP and Shell purchased 13 commissioning cargoes

“Conversely, while some in their letters disingenuously invoke European energy security as a justification for their complaints, their actions tell a different story,” Venture Global said.

“Motivated by the highest possible profit, the supermajors have traded several of the cargos they have received from Venture Global to places outside of Europe,” the firm said.

“For example: to date, Shell has purchased 7 commissioning cargoes from Venture Global and 3 of them were traded outside of Europe for higher profits. Similarly, BP has purchased 6 commissioning cargoes, and 2 have been traded to destinations outside of Europe,” Venture Global said.

“In addition, from publicly available data, Shell has an abysmal record of failed execution at its own LNG facilities in which they are a major shareholder or a construction leader. As a result, Shell has been and continues to be short by more than 300 cargos of LNG between 2020 and 2026,” according to Venture Global.

“This includes more than 200 cargos of future shorts (beyond November 2023) and presents Shell with a potentially unprecedented shortfall,” the firm said.

“Even though it has no contractual right to do so, we believe Shell is likely targeting Venture Global’s commissioning volumes principally because the replacement cost for its own catastrophic execution mistakes is so high. The reputational damages that Shell faces are extraordinary,” the company said.

Venture Global “honoring its contractual obligations”

“Venture Global is honoring its contractual obligations to its long-term customers in strict conformity with its long-term contracts. The contracts are very clear, which is why our critics are seeking to litigate this through our regulators and in the media,” the company said.

“Under those contracts, which are no different from long-term contracts utilized by other US LNG exporters, the obligations to deliver LNG to the long-term customers have not commenced due to the ongoing commissioning, repair, rectification and completion of the facility,” it said.

“These contractual provisions are unambiguous and unequivocal, and are well understood to industry participants, as well as the financial institutions and investors who lend to or participate in US LNG export projects,” the company said.

“Relying on the commissioning periods at other US LNG export terminals as their benchmark, the long-term customers conclude that the duration of the facility’s relatively longer commissioning period, and the resulting LNG production, means that Venture Global’s obligations to deliver LNG to them must have commenced,” it said.

“This is also untrue. Because it utilizes a first-of-its-kind, midscale modular design model, with eighteen liquefaction trains and independent power and pretreatment modules, Venture Global has been able to produce LNG from parts of the facility during construction, well before commissioning even commenced,” Venture Global said.

“Diligently working” toward the full completion of the facility

“Moreover, its actual commissioning period is demonstrably longer due to the number of components that reflect its modular design. Simply put, there are no other LNG projects in the world against which Venture Global’s commissioning or pre-commercial LNG production can be measured on a like-for-like basis,” it said.

“Even with extended commissioning and delays due to problems beyond our control, we are still producing LNG cargoes and will still take COD faster than most other LNG projects, including Shell Canada which took FID over 61 months ago,” it said.

“As is common with greenfield LNG projects, Venture Global’s facility is experiencing equipment failures and other wearing-in issues that must be resolved before it is sufficiently stable or reliable to meet the delivery obligations that it will owe to its long-term customers,” the company said.

Venture Global said it is “diligently working” toward the full completion of the facility, and the “anticipated schedule for doing so is within (or even ahead of) the typical timeframe for other LNG projects.”

“We have been fully transparent with our long-term customers, federal and state regulators and other stakeholders regarding the challenges faced thus far in reaching that important milestone,” it said.

“Finally, in addition to this letter, we are considering what further actions may be appropriate in light of this highly coordinated attack on our business and reputation by European energy industry heavyweights seeking to use their market power to modify their contracts and stifle competition in global LNG liquefaction,” the company said.

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