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Shell and BP have asked Washington and Brussels to intervene in a bitter dispute with Venture Global LNG, warning the company’s refusal to honour a multibillion-dollar liquefied natural gas supply contracts threatens Europe’s energy security.
In correspondence seen by the Financial Times, the oil majors accuse the US LNG provider of “misconduct” for withholding cargo agreed under long-term supply contracts and instead selling LNG on the spot market.
Shell alleges Venture Global’s “opportunistic” action has enabled it to reap an $18bn windfall because of a spike in gas prices following Russia’s invasion of Ukraine while denting its ability to meet critical energy supply needs in Europe.
The accusations have sparked a war of words, with Venture Global branding as “outrageous” the companies’ “request for interference” from the governments in binding contracts.
The supermajors, alongside Spain’s Repsol and Italy’s Edison, are among several foundation customers embroiled in contract arbitration with Venture Global. Foundation customers agree long-term contracts that help LNG providers attract financing to build their projects.
The European energy groups are all seeking to force the US company to deliver the contracted cargo or pay financial penalties under a process that could take years.
The call for intervention from the joint EU-US Task Force on energy security — set up after Russia’s invasion of Ukraine to spur US gas exports to Europe — marks a significant escalation of the dispute. The body is headed by senior officials, including Ditte Juul Jørgensen, director-general for energy at the European Commission, and Amos Hochstein, US President Joe Biden’s senior adviser on energy.
Shell said in a letter to the officials seen by the FT: “Such short-sighted, unprecedented conduct sets a concerning precedent that could erode market confidence and delay investment in the US LNG export infrastructure that is still critically needed to support Europe’s energy security.”
The letter authored by Steve Hill, executive vice-president of Shell Energy, and dated October 27 urges the task force to press Venture Global to cease its “unjustifiable and damaging” actions and honour its long-term supply agreements.
A separate letter from BP concurred with Shell’s position. “Venture Global’s conduct has shaken confidence in the trustworthiness of American LNG suppliers at a critical time,” wrote Carol Howle, BP’s executive vice-president of trading and shipping.
In its own letter to the officials, dated November 10, Venture Global said it was “honouring its contractual obligations to its long-term customers in strict conformity with its long-term contracts”.
“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,” Mike Sabel, the company’s chief executive, and Bob Pender, co-chair, wrote.
Venture Global’s first LNG facility, Calcasieu Pass, located on the Gulf coast in Louisiana, commenced producing LNG in January 2022 and exported its first cargo two months later. But the company argues it has not yet started full commercial operations and is not obliged to supply foundation customers until the commissioning is completed.
It has declared “force majeure” on its contractual commitments on the grounds that the facility’s power supply equipment needs repair.
Shell said the company’s excuse does not withstand scrutiny, as the facility has delivered more than 200 cargo shipments to customers. The nearly 600-day commissioning period for Calcasieu Pass defies industry standards, it added.
In its letter, it alleges Venture Global’s conduct “threatens to undermine the very objectives” of the task force, which is to boost Europe’s energy security. Venture Global retorted that as one of the few companies to successfully finance, commercialise and build capacity it has been “integral” to the increase of US gas exports.
Edison has also written to the task force requesting it “use all of its powers” to force Venture Global to supply the cargo. It accused the company of “profiteering” at the expense of European customers.
Edison cites a report by Wood Mackenzie which forecast Venture Global stands to gain $17.5bn from the short-term market sales, compared to $2.8bn it would receive under long-term contracts with foundation customers.
“This issue is no longer a private dispute between companies,” said Edison in a letter seen by the FT. “Rather it is exacerbating an energy crisis affecting the lives of everyday European citizens. It can no longer be overlooked.”