Calcasieu Pass commissioning cargoes dispute - no winners in sight

Although Calcasieu Pass went from FID to LNG production in just 29 months, it then underwent (and is still undergoing) one of the longest known LNG production commissioning phases. Commissioning cargoes to test and tune an LNG facility are not counted as part of the long-term agreements with foundation partners.

According to S&P Global Commodity Insights trade flow data, 12 months after the first cargo was lifted, by March 2023, Calcasieu Pass had exported 138 cargoes, with an estimated value of over US$10Bn, based on average FOB prices in the period.

For Calcasieu Pass, it was an opportunity to sell cargoes at prices far higher than the long-term agreements, and it was argued that had the cargoes been provided to foundation partners, these would have been flipped in the spot market, with no gain to Calcasieu Pass.

The foundation partners protested that denying them cargoes led to the loss billions of dollars in potential sales, and that they had to go into a red-hot spot market to buy LNG to meet their own commitments.

In July 2023, it was reported that Calcasieu Pass had commenced providing cargoes to the foundation partners.

Meanwhile, both Shell and bp separately filed for arbitration against Venture Global LNG. The cases were filed at the London Court of International Arbitration. According to law firm Cleary Gottlieb, Italian foundation partner Edison also launched proceedings against Global Venture in May 2023, for failing to provide any shipping under a 2017 agreement.

However, Venture Global maintains that it is in full compliance with the terms of its long-term contracts and cites the need for extensive commissioning of its modular facility as the reason for the delay in contract deliveries. This included repairs to the on-site power supply, which prevented contract deliveries from the first phase until early 2024.

The foundation partners argue that these issues did not seem to hinder the sale of commissioning cargoes at the then higher price levels.

In November 2023, the dispute entered a new phase, when bp and Shell wrote to the EU-US Task Force on Energy Security asking it to intervene, noting that Venture Global’s “opportunistic” actions were “exacerbating as energy crisis affecting the lives of European citizens.”

Venture Global responded with its own letter to the Task Force, reporting the dispute was “…nothing more than the latest in a series of unsuccessful attempts to bully an industry newcomer into waiving contractual rights in order to increase their own profits beyond recent record highs.” The letter went on to point out that both Shell and bp had bought commission cargoes from Venture Global, which were then traded for a profit to customers outside Europe.

It also added that Shell, “has an abysmal record of failed execution at its own LNG facilities in [which] they are a major shareholder or a construction leader.”

Despite the record early start, and the delivery of a reported 250 commissioning cargoes, in February 2024, Venture Global asked the Federal Energy Regulatory Commission (FERC) for an extension of its Calcasieu Pass facility start date authorisation to February 2025.

Venture Global has reported remedial work is required on the liquefaction trains, especially the heat recovery steam generators, which it believes will be completed in late 2024.

By April 2024, LNG spot cargo prices had fallen to around US$11 per mmBtu and in the latest earnings calls, bp and Shell have vowed to pursue their legal rights and contracts.

It is clear that the disagreement between Venture Global LNG and its partners highlights the importance of clearly defining commissioning in future purchase and sales agreements and that buyers will likely seek more certainty in supply arrangements to avoid similar situations.