Exclusive: LNG developer Venture Global spars with customers over cargoes

Nov 24, 2023

HOUSTON, June 9 (Reuters) - Venture Global LNG, which is building three multi-billion dollar U.S. liquefied natural gas processing plants, is sparring with two customers of its first project over mechanical failures that have prevented commercial deliveries a year after initial shipments began.

The dispute - over what constitutes commercial operation - underscores the huge profits available to providers last year as demand soared for U.S. LNG and prices nearly tripled. It also shows newer, highly-modular plant designs have not escaped the delays that plagued earlier LNG projects.

Italian electric utility company, Edison SpA (EDNn.MI), in May brought an arbitration proceeding against Venture Global over its failure to supply cargoes, Edison's spokeswoman said. Spanish energy firm Repsol SA (REP.MC) recently challenged the Arlington, Virginia-based company in an appeal to the U.S. Department of Energy (DOE) for failing to provide it with cargoes.

Venture Global's Calcasieu Pass LNG export facility in Cameron Parish, Louisiana uses a modular design that stitches together 18 liquefaction units that combined deliver up to 12 million tons of the supercooled gas. The facility is the first of three complexes that will cost more than $20 billion and when completed produce 70 million tons of LNG per year.

Venture Global described the complex at the time of its first cargo shipment last year as holding "the global record for the fastest large-scale greenfield LNG facility to ever be built."

But a year after that first cargo left the docks at the plant, Venture Global disclosed that the plant's on-site power supply facility required "extensive repairs" that would delay commercial operations.

The company "remains in full compliance with all obligations under our long-term contracts, including timing," spokeswoman Shaylyn Hynes told Reuters. Its modular design "has required substantial testing and a phased commissioning" or startup period, she added.

Criticisms of its continued shipments to buyers willing to pay high spot prices during that lengthy process represents "an attempt to damage Venture Global's reputation and gain commercial leverage," Hynes said.

The shipments to date have been pre-commercial, or outside its contracted volumes because of the phased startup. Still, Venture Global shipped at least 128 cargoes from Calcasieu Pass in the 12 months to March, and most went to Europe at a time when spot prices were at all-time highs.

Edison and Repsol signed purchase contracts with Venture Global in 2017 and 2018, respectively. LNG at the time cost between $8 and $12 per million British thermal units (mmBtu) in Europe. Last year, prices jumped to $89 per mmBtu in August from $23 per mmBtu in February when Russia invaded Ukraine.

The Calcasieu Pass plant generated and shipped about 11 cargoes per month from March 2022 to this year that were sold as pre-commercial supplies. That volume irked contract customers who believe Venture Global took advantage of high spot LNG prices at their expense.

Its customers include Edison, Repsol, Shell (SHEL.L), Portugal's GALP (GALP.LS), German utility EnBW (EBKG.DE) and Polish gas company PGNiG, which was acquired last year by oil refiner PKN Orlen. (PKN.WA).

"Given that Edison assumes that there is no legal justification for such delay and that the situation is not tolerable any longer, Edison had no other choice than starting in May an arbitration proceedings," a spokesperson for the Italian utility said.

Repsol recently asked DOE to reopen its permit approvals of Calcasieu Pass. It wants the department to evaluate "whether Venture Global is complying now with the requirements of DOE's orders and making accurate representations to DOE and its staff."

In its reply to DOE, Venture Global chastised Repsol as an "impatient" customer.

Shell, GALP and PGNiG declined to comment. Repsol's attorney did not reply to requests for comment on the DOE appeal. EnBW's contract specifies its first shipments would begin in 2026.

Venture Global's Hynes declined to say when the company expects to provide commercial deliveries, or to comment on Edison's arbitration claim. The company in an April filing with the Federal Energy Regulatory Commission (FERC) said it expects commercial operations to begin in the first quarter of 2024.

Contract customers have been aware of the lengthy startup process and their long-term contracts reflect it, Hynes said.

Its mechanical problems involve failures in the horizontal heat recovery steam generator (HRSG) units provided by General Electric Co. Those units facilitate combined-cycle power generation.

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