Venture Global LNG has told a U.S. regulator that it cannot meet contracts to provide liquefied natural gas (LNG) cargoes to several major customers because its export plant is not yet ready to meet three criteria in the contracts, according to a letter to the Federal Energy Regulatory Commission (FERC).

Shell PLC (SHEL.L), BP PLC (BP.L), Galp (GALP.LS) and others have complained that they have lost billions of dollars in sales because Venture Global's Calcasieu Pass export facility has been producing and selling LNG for more than 20 months while saying it cannot provide them with term-contract cargoes while the plant is undergoing a commissioning phase.

Venture Global in response to a letter from Shell said that under the contract, the criteria to move to commercial operations include all of the facilities being completed, commissioned and capable of delivering LNG in sufficient and quality quantities to allow Venture Global to perform all of its obligations to its customers.

"None of these three contractual requirements for commencing LNG sales under the SPA has been satisfied," Venture Global said in response to Shell's letter.

Shell earlier this month filed a letter to FERC in support of BP. The letter called on the regulator to force Venture Global to release plant commissioning data to determine why commercial operations are stalled.

The two energy giants are among a group that includes Edison SpA (EDNn.MI), Polish state energy firm Orlen and Spain's Repsol (REP.MC) that have filed contract arbitration claims on the lack of LNG cargoes provided under their contracts.

Shell wants an order for blanket disclosure of privileged documents, or an acceptable level of unilateral redaction of documents, the FERC filing shows.

Venture Global told the FERC that Shell’s utilization of the complaint process is simply a pretext for airing false and disparaging claims against Calcasieu Pass in another public forum.

"The commercial terms of Calcasieu Pass’ contracts with its customers are outside the scope of the Commission’s jurisdiction," Venture Global asserted in its response.

Venture Global has become a major U.S. exporter of the superchilled gas since it started processing at its Calcasieu Pass, Louisiana, plant early in 2022. It has sold more than 200 cargoes of the gas under its own accounts without supplying BP and other long-term contract customers.

JP Morgan analysts in a note last week to clients said it is difficult to see Venture Global losing its arbitration cases against the majors because the contracts do not seek to protect buyers from the risk of a commercial operating date being delayed.

With the contracts likely having liability caps to limit Venture Global's exposure, the analysts say it is unlikely any loss will significantly hurt the LNG startup since it would likely be less than its second-quarter 2023 quarterly free cash flow.

For Venture Global the real risk is fewer companies being interested in doing business with it, the analysts said.

"Our interpretation of the LNG buyers’ very public and very loud approach to the dispute is perhaps a tacit acknowledgement that their actual contractual argument is likely poor," JP Morgan analysts wrote. Reuters