NLNG and Venture Global Breaches: Shell says The Global LNG business built on sanctity of contracts

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Shell has accused U.S.-based Venture Global LNG of wrongfully earning $3.5 billion, according to a report by the Financial Times.

Shell’s claims are based on a study commissioned by Compass Lexecon, a consulting firm, which sought to quantify the additional revenue Venture Global allegedly gained by withholding contracted LNG shipments from certain European customers. Shell’s CEO, Wael Sawan, commented on the situation, stating: “It is not in the spirit of what we have typically seen, nor is it the norm in the LNG business. The global LNG business has been built over the past 60, 70 years on the back of the sanctity of contracts, on the back of ensuring that suppliers and buyers live up to their part of the bargain.”

Shell’s Nigerian subsidiary, Nigeria LNG (NLNG), has faced sanctions from both a London arbitration panel and the High Court of Justice of England and Wales for a similar breach of an LNG supply contract. The breach occurred when NLNG allegedly failed to deliver LNG due to an unprecedented surge in spot prices.

The British energy giant claims that Venture Global LNG diverted gas shipments to higher-priced spot markets instead of honoring its long-term contracts with European customers. Shell alleges that Venture Global’s actions resulted in the wrongful gain of $3.5 billion after redirecting liquefied natural gas (LNG) shipments to spot markets following the spike in commodity prices, which occurred after Russia’s invasion of Ukraine in February 2022.

Previously, Venture Global LNG criticized Shell for its performance record at its own LNG facilities. Some industry observers see this accusation by Venture Global as reminiscent of the legal issues faced by NLNG, where it was found that the company had breached a contract by failing to deliver 19 LNG cargoes. This contract, signed in January 2020, led to a London arbitration panel ruling against NLNG. The panel included John Beechey CBE, J. William Rowley KC, and Nevil Phillips. Further investigations, including online reports, have highlighted NLNG’s disregard for the contract’s terms and conditions. An anonymized judgment from the High Court of Justice of England and Wales, issued on July 31, 2024, confirmed NLNG’s breach of contract.

The allegations by Shell against Venture Global come as arbitration proceedings between the two companies—and others in the energy sector—are set to begin. Venture Global, a newer player that has shaken up the global LNG market, faces scrutiny from several energy companies that claim the firm failed to uphold contractual obligations.

As the global LNG market watches the NLNG and Venture Global developments closely, the outcome of these proceedings is expected to have a significant impact on future legal and financial assessments, as well as on contract enforcement within the industry. As for Nigeria LNG (NLNG), it remains unclear whether the company will pursue an appeal of the judgment issued by the UK High Court.