About a year and a half ago, when Europeans were desperately looking for an urgent replacement for Russian pipeline gas, LNG producers from the United States emerged as…. saviors. Dozens of tankers with liquefied natural gas began arriving at European ports and, from there, into winter storage.
However, a few months later, the saviors have turned, in the eyes of the buyers, into selfish and greedy profiteers in a dispute that is being taken to the courts and threatens to become a very large international problem. This time last year, the US LNG industry was largely a godsend for Europe despite elevated prices.
The mood was similar for the United States: with so much new capacity planned, producers needed some big buyers in the long term. And some of them found them in the face of the European energy giants.
The US, with its vast natural gas reserves and growing production, was a natural target for those looking for opportunities.
Thus, several European companies, such as Shell, BP, Eni, Repsol and Edison, became investors in a large US LNG project led by a company called Venture Global.
All five companies provided Venture Global with the money to build the Calcasieu Pass liquefaction facility in Louisiana in exchange for Venture Global’s commitment to supply them with certain volumes of LNG over a long-term period.
The site has a capacity of 10 million tons and began producing those tons in early 2022, at a particularly critical time for Europe as Russia invaded Ukraine. But instead of honoring its contracts with European buyers, Venture Global chose to sell more LNG on the spot market. So now the Europeans are suing.
All five energy companies have sought arbitration against the US LNG producer, most recently Spain’s Repsol, which approached the International Chamber of Commerce in September this year. Now, these five companies are turning to Brussels and Washington to help them in the dispute. Obviously, international courts are not enough to deliver justice quickly.
Venture Global, which has not denied selling cargoes in the spot market, claims the LNG plant at Calcasieu Pass is not fully operational and therefore was not supplying full volumes under the long-term contracts with the five European companies.
Indeed, if the buyers’ allegations are true, such behavior could have a significant negative impact on the future development of US LNG export capacity. But perhaps even more important than that, the case highlights how vulnerable LNG supply security is despite growing volumes.
Ironically, the EU itself was a big fan of spot LNG — until last year. There was plenty of LNG around and prices were low because Europe imported almost half of its natural gas from Russia and needed only modest volumes of liquefied fuel. So there was no point in committing to long-term contracts. Until most of the Russian gas disappeared and Europe suddenly realized that it could not stop the gas overnight.
Lovers of the spot market
LNG producers are also fans of the spot market because prices are higher there.
In fact, last year many US LNG producers took advantage of it, even when it meant violating the terms of their long-term contracts: they simply paid the fine and still made more money as people rushed to buy all the LNG they could.
Now BP, Shell, Eni, Repsol and Edison want Brussels and Washington to pressure Venture Global into meeting its contractual obligations. That they have failed to exert the necessary pressure themselves is yet another sign that the global LNG market is more complicated than it seems.
The company also claims that it is, in fact, fulfilling its contractual obligations to the five buyers, which contradicts its own statement that the Calcasieu Pass facility is in a state of emergency and not operating at full capacity.
However, other sources report that Calcasieu Pass was operating normally and selling the contracted volumes to Europeans, but then selling them outside of Europe for greater profits. For now, authorities in both Europe and the US have shown they aren’t exactly willing to get involved.