Venture Global LNG is reportedly starting production at its Plaquemines LNG project in Louisiana, poised to become the first new US LNG plant in two years. Plaquemines LNG will be brought to market on a controversial commissioning strategy, which relies on spot market sales while the plant nominally remains in its commissioning phase. This mirrors ongoing disputes at its Calcasieu Pass plant, where major customers are seeking arbitration.
Venture Global LNG is poised to commence LNG production at its Plaquemines project in Louisiana, according to reporting by Reuters.
This development marks the first new American plant in two years to produce LNG following Cheniere Energy's Corpus Christi midscale expansion project.
Start indicators
The export facility, with nominal capacity of 20 million metric tonnes per annum, was scheduled to draw more than 100mmcfd of natural gas for the first time on Thursday last week.
American regulators have also granted Venture Global permission to commission its sixth of 18 blocks at Plaquemines, with each block comprising two trains and utilising 150mmcfd of gas.
Commissioning period
The launch initiates a commissioning period lasting up to two years, during which Venture Global retains all revenue from shipments.
Long-term contract customers of the Louisiana facility might face delays of up to two years before receiving their cargoes under the commissioning schedule, which extends to 2026 in the first phase and 2027 in the second.
Similar delays at Venture Global’s first plant, Calcasieu Pass LNG, have sparked contract disputes leading to arbitration, first with Italy’s Edison and later with BP, Shell, Repsol and Orlen.
Losing these disputes could cost Venture Global billions of dollars, as indicated by documents from a senior notes offer in July seen by Reuters.
Spot market sales
Whilst having sales contracts in place for the LNG plant supported Venture Global's initial financing efforts, the company is set to focus on spot market sales to grow profits during the commissioning period.
It maintains that during commissioning the plant is not operating at optimal levels and thus not obligated to deliver contracted cargoes. According to our data and calculations,
Calcasieu Pass LNG has been operating at around 80pct of annualised capacity in 2023 and is set to do the same in 2024. Calcasieu Pass LNG has shipped close to 360 cargoes since March 2022, according to our data, ahead of Cove Point and Elba Island LNG.
"A key element of our business strategy is to generate proceeds from the sale of LNG prior to the relevant project achieving COD (commercial operation date)," Venture Global stated in its offering, with COD marking the conclusion of commissioning.
According to this statement, Calcasieu Pass LNG has been in commissioning since March 2022, when it shipped its first cargo via the LNG carrier Yiannis well ahead of schedule.
The plant was originally scheduled to start shipments in early 2023.
Dispute
Venture Global defended its practice, asserting that it had been upfront with its stakeholders. It also pointed to delays at the Shell-led LNG Canada development, asserting they showed commissioning can be a lengthy process.
Shell, however, has expressed concerns, stating that their experience with Venture Global leads them to view the LNG developer as "an unreliable supplier".
It is unclear to what extent the contracting parties defined “optimal operation levels” or whether they agreed a fixed commissioning term before COD would be effective.
Notably, the Plaquemines project has already exceeded its budget by more than US$2.3 billion as Venture Global strives to remain on schedule.
According to bond documents, the developer intends to operate the plant at 15pct above nameplate capacity. Higher margin spot market sales would thus be welcomed by Venture Global.
However, Venture Global has not secured any new supply agreements since June 2023, when Reuters reported the company's arbitration proceedings with Edison.
