Violation of trust: Venture Global at Calcasieu Pass LNG vs FERC, an analysis

Venture Global began constructing the Calcasieu Pass LNG facility in 2019 with a FERC deadline to be operational no later than February 21, 2024.  Despite having exported 307 cargoes of LNG from February 2022 to date, Venture Global has not declared a commercial operation date (COD), causing conflict with foundation buyers.  A late application to the Federal Energy Regulatory Commission (FERC) to extend the deadline by a year has been put on hold following a ruling on a ruling on June 10, affirming buyers’ rights to intervention and principally important right to access privileged information, e.g. into problems with the heat recovery steam generation facility.  Calcasieu Pass LNG is now technically in breach of its permit.  A prehearing conference is scheduled by appointed Administrative Judge today, June 13, 2024.  A FERC ruling on an extension of the deadline for full in-service operation (and effectively the COD) can likely not be expected until Q4.  In the interim, Eikland Energy expects plant operations to be unaffected, but that a new Annual Delivery Program will in course of the fall change radically from spot to contract buyers.  If FERC in considering the application for extension of the startup deadline should also find Venture Global to have been delinquent, the firm could potentially face significant legal and financial repercussions.

Venture Global started construction of the 10 mtpa Calcasieu Pass LNG facility in 2019 with a 5-year FERC deadline to place the plant into service by February 21, 2024. The first commissioning cargo, sourced from the first three of nine liquefaction blocks, was loaded onboard the Yannis early February 2022. FERC finally authorized startup of the last two liquefaction blocks on October 26, 2023. In its latest inspection report (November 28, 2023), FERC noted that ‘Remaining activities at site are commissioning in nature, aimed to fine tune the facility operations.’ Additionally, the HRSG project received an ‘Assessment: Acceptable‘ label. To date, Eikland Energy’s iGIS/LNG data has recorded 307 ship cargo loadings from Calcasieu Pass LNG.

However, Venture Global’s more than 150 weekly status and progress reports to FERC consistently highlighted ongoing reliability challenges with the heat recovery steam generators (HRSG). Surprisingly, none of these reports have been made available to Calcasieu foundation LNG buyers. Venture Global defended the lack of transparency by claiming exemption from the Freedom of Information Act under the Code of Federal Regulation, FERC section 388.112, citing commercially sensitive, privileged, and confidential information. When occasionally challenged, Venture Global has asserted that customers lacked understanding of FERC rules and might misuse the information for own benefit.

The situation escalated in June 2023 when foundation buyers Shell and BP filed for arbitration for non-receipt of contracted LNG despite the plant operating stably near capacity based on regular spot sales of LNG. By Q3 2023 all block 1-5 LNG foundation buyers had filed for arbitration, and later also block 6-7 buyers. However, given Venture Global’s insistence of denoting all information to FERC as confidential the factual basis for arbitration to move forward was limited. In October 2023 an Eikland Energy analysis advised using government and regulatory channels, which BP and Shell pursued in December and January, respectively. However, it was only when Venture Global belatedly sought an extension of the in-service startup deadline that FERC had strong formal basis for action.

Just six days before the Calcasieu Pass LNG in-service startup deadline (on February 15, 2024), Venture Global applied for a one-year extension, to push the deadline to February 21, 2025. This delay in seeking deadline extension is remarkable given the persistence of the claimed HRSG problems and Venture Global’s understanding of and respect for FERC processes.

Its late realization of a blunder may explain Venture Global’s perplexing February 15th alternative request to FERC to ‘… rule that such an extension is not necessary because the in-service condition was already satisfied when the Project’s liquefaction trains were placed in-service.’ This implies that, despite reported HRSG problems, Calcasieu Pass LNG was effectively fully operational when blocks 8-9 received startup permit in October 2023. The inconsistency between this alternative request and the continuing failure to declare Commercial Operation Date (COD) to honor LNG sale and purchase agreements (SPA) is remarkable. It could imply that Venture Global has never intended to declare COD and start LNG deliveries to its foundation customers.

With its ruling on June 10, 2024, FERC effectively dismissed Venture Globals alternative request, putting Calcasieu Pass LNG in technical violation of its operating permit. The breach of the in-service deadline is also a significant milestone in Venture Global’s contractual obligations as a reasonable and prudent operator and its failure to declare COD.

Venture Global’s recent behavior remains puzzling beyond its remarkable delay in seeking an in-service date extension. Despite clear provisions under CFR 388.112, the company rejected any intervention into its application and denied insight into privileged information. It also missed the March 8 deadline for responding to customers’ motions for insight. In the June 10th ruling, FERC bluntly stated: ‘Venture Global had enough information in the initial motions to intervene to timely oppose them but failed to do so.’

FERC’s ruling is principally important as it affirms that foundation LNG buyers have legitimate interest and the right to access privileged information. The specific ruling calls for an agreement, no later than 25 July, for customer insight into Calcasieu Pass privileged information. To enable FERC’s subsequent decision on extending the in-service operation deadline, a timeframe will be set for customers (or their representatives) to deliver their statements. Due process may push FERC’s decision into Q4 2024, paradoxically aligning with Venture Global’s assertion that the HRSG problems will be resolved by then.

The extent of Venture Global’s penalty or reprimand will emerge from the fact gathering and discovery process that has now been initiated. Overall, LNG availability from Calcasieu Pass is unlikely to be affected, although the buyer mix will change radically with a declaration of COD and a new annual delivery program (ADP). FERC’s Enforcement program i.a. focuses on fraud and market manipulation, anticompetitive conduct, and conduct that threatens the transparency of regulated markets. ‘Where violations occur, the enforcement program seeks the imposition of appropriate remedies, including compliance commitments, disgorgement of unjust profits resulting from the violations, and civil penalties.’

While it is too early to speculated on the nature of a potential reprimand, FERC’s scathing ruling this week likely surprised Venture Global. Venture Global has in the past not shyed confrontation, but it now faces a multi-front crisis. While no official statements have been issued, a softer approach could e.g. be manifested through a change in tone from their previously confrontational spokesperson. The parties will now have full focus on the prehearing conference on Thursday, June 13th, presided over by Administrative Judge Matthew J. Vlissides Jr.

Venture Global may have believed it successfully deflected the arbitration cases in 2023 regarding the failure to declare COD at Calcasieu Pass. However, it has come at the cost of mistrust and acrimony with the foundation buyers. Additionally, the process may have diverted Venture Global’s attention, leading to a violation of the in-service startup deadline – an area where both the Department of Energy and FERC now have stengthened focus. If it turns out that Venture Global intentionally concealed, misstated, or exaggerated HRSG problems, or failed to act as a skilled, reliable and prudent operator, its trust with FERC will be hard to repair. In addition, arbitration proceedings with the foundation buyers could be reignited, and in the extreme the coming proceedings could open up the legal and financial can of worms called willful misconduct. That exposure could also come from current spot/short-term buyers who risk loosing their currently scheduled liftings.

Despite the complications ahead it seems fair to agree with Venture Global stating that ‘… there can be no conceivable question about Calcasieu Pass’ commitment to completing its Project.’