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BP has won a high stakes arbitration case against Venture Global in which it accused the US liquefied natural gas producer of breaching contracts to profit from higher prices at the start of Russia’s invasion of Ukraine.
The case was one of several pursued by Venture Global’s customers alleging it failed to deliver shipments under long-term supply contracts and instead sold them for higher prices on the spot market when gas prices soared in early 2022.
BP’s victory is a major blow to one of the largest US LNG exporters, which now faces a separate hearing to determine damages in the case. The UK oil group is seeking damages in excess of $1bn, as well as interest, costs and attorneys’ fees.
Venture Global shares fell as much as 14.2 per cent in after-hours trading following the decision. The arbitration panel’s ruling against Venture Global was unexpected following the company’s victory in an earlier case involving Shell.
“The decision is an unwelcome surprise,” said Andrew Gillick, at Enverus, an energy data firm. “With multiple cases to follow, the risk of financial damages will rise, putting stress on the balance sheet and potentially slowing expansion plans.”
Venture Global in August defeated Shell in the first of these cases, which are being heard by the International Chamber of Commerce. The LNG supplier faces cases from China’s Sinopec and several European customers, which lodged damages claims for between $6.7bn to $7.4bn against the company.
Venture Global has said contractual provisions limit the total liability for these claims to about $1.6bn, although this is disputed by some of the customers.
Venture Global on Thursday said it was disappointed by the arbitration decision, which found the company had “breached its obligations to declare commencement of commercial operations at its Calcasieu Project in a timely manner”.
The company said the decision did not affect its long-term sales agreement with BP, adding it had delivered 14 cargoes to the oil supermajor from the project. Venture Global said it had also reached a settlement with one of the other arbitration claimants.
BP said it was pleased with the outcome and appreciated the arbitration panel’s “thorough review and fair judgment on this matter”.
“We look forward to the next phase of the arbitration process, which will determine the damages to be paid to BP as a result of Venture Global’s breach of contract,” it said.
Venture Global, founded by ex-banker Michael Sabel and lawyer Robert Pender, has shaken up the global LNG industry by expanding rapidly and becoming embroiled in a bitter public dispute with industry heavyweights Shell and BP. But the company, which has close ties with Donald Trump’s administration and contributed $1mn to the president’s inaugural campaign, faces challenges following a lacklustre initial public offering in January. Its shares trade at barely half its IPO price of $25.
Data from S3 Partners show short interest — the proportion of a company’s shares on loan to short sellers who are betting they will fall in value — amounts to about 24 per cent of Venture Global’s float, placing it among the top-100 most-shorted US stocks.
The arbitration cases have prompted LNG market participants to tighten contractual terms for long-term supply contracts.
“The recent arbitrations have undoubtedly played a part in the evolution of long-term LNG contracts,” said Charlie Riedl, executive director at the Center for LNG, an industry lobby group. “Short and long-term contracts with US exporters have evolved since exports first began almost a decade ago and will continue to evolve to meet buyers’ needs.”
Venture Global denied it violated its contracts, arguing it was not obliged to ship cargoes because its export facility had not started commercial operations when it sold cargoes on the spot market. The company declared force majeure on its contractual commitments on the grounds that the facility’s power supply equipment needed repair.
BP, Shell, Sinopec, Poland’s Orlen, Portugal’s Galp, Spain’s Repsol and Edison rejected this argument, noting Venture Global sold hundreds of cargoes.
Additional reporting by George Steer
