New York City isn’t usually where energy headlines are made. But earlier this month, Manhattan judge Joel Cohen did just that when he sided with upstart liquefied natural gas (LNG) producer Venture Global over Shell in a multimillion-dollar contract dispute that offers a revealing glimpse into the entrepreneurial forces driving American energy dominance.
Over the past two decades, American oil and gas companies have redrawn the world’s energy map. Today shale gas fracked in West Texas is piped to the Gulf Coast, liquefied and shipped to energy-hungry countries around the world. Since 2015, the U.S. has gone from LNG importer to the world’s top LNG exporter.
The surge in domestic oil and gas production has significantly enhanced America’s foreign policy leverage. While consumers are feeling the pain of the hike in gas prices since the start of the Iran war, the economic fallout would be much worse if the U.S. weren’t the world’s dominant energy producer.
Few companies better capture the U.S. natural gas boom than Virginia-based Venture Global. Founded in 2013 by ex-banker Michael Sabel and DC energy lawyer Robert Pender, Venture Global has emerged as a major player in the surging LNG export industry by shaking up the industry’s standard playbook.
From the start, the company developed a new approach to liquefaction terminals that’s faster and less expensive than the legacy model. Whereas the industry norm is to spend years constructing massive terminals onsite, Venture Global builds lego-like, modular facilities — called “trains” — offsite and assembles them at the project location. It also restructured the typical LNG construction process and set up its modular trains sequentially.
According to Sabel, the “design one, build many” process accelerates liquefaction and revenue generation. Not everyone saw it that way at first. BloombergNEF panned Venture Global’s inaugural facility as “highly unlikely.” Last summer, the company inked a $15 billion financial deal for its third facility.
Venture Global’s innovative model enabled it to produce and export cargoes before it fully assembled a plant. While its first plant was still under construction, the company signed long-term agreements worth billions to sell cargos to global supermajors. The upstart’s customers, including Shell, had no complaints about this plan until the price of LNG spiked in 2022 when Russia invaded Ukraine and Europe was forced to look elsewhere for fuel.
Venture Global’s early production was critical for global energy security then just as it is now when the world is once again in desperate need of more U.S. LNG supply. In its lawsuit, however, Shell claimed that Venture Global broke its deal with the Dutch supermajor by redirecting LNG shipments to buyers offering higher spot-market prices instead of supplying Shell at the contracted rate.
But the agreement clearly stated that Venture Global wasn’t obligated to start selling to long-term customers once the facility started production and that it could supply other buyers before Shell. Venture Global was required to deliver shipments to Shell only after several conditions were satisfied, including the commissioning of “all of the facilities.” Shell, which runs one of the largest oil and gas portfolios in the world, was well-aware that Venture Global planned to complete the plant in parts and that it wouldn’t get any LNG until the facility was fully operational.
Before Shell filed the case that landed in Judge Cohen’s courtroom, the Dutch supermajor tried to hold Venture Global liable for breach of contract at the International Court of Arbitration. The arbitration proceeding lasted two years. The parties produced 130,000 pages of documents and filed 1,300 pages of briefs along with 1,200 exhibits, 27 witness statements, and 20 expert reports. The whole ordeal cost Venture Global more than $40 million in legal fees.
Last August, a distinguished panel of three arbitrators issued a 50-page opinion that rejected Shell’s claims of contractual breach and ruled in favor of Venture Global based on the agreement’s plain language. Unhappy with the arbitrator’s thorough ruling, Shell turned to a New York court in a renewed effort to re-trade the deal it accepted years ago.
In his opinion, Judge Cohen rejected Shell’s attempt to take another “bite at the apple” by “making an essentially identical application to this Court in the hope of obtaining a different outcome and using it to relitigate the arbitration.” Venture Global’s shares jumped nearly 7 percent on the news of the ruling.
Still, it’s unfortunate that Venture Global had to spend additional legal fees relitigating claims it had already defeated. That money would have been much better spent on its next LNG facility. This week’s Iranian attack on Qatar's Ras Laffan Industrial City, a major LNG export hub, underscores the importance of American domestic energy production.
In its brief to Judge Cohen, Venture Global cast Shell as an old-guard behemoth seeking to sideline “an American innovator that is rapidly gaining market share.” Despite the clear language of the agreement, five other long-term contract holders have also filed arbitration cases against Venture Global over the company’s spot market sales. Along with the Shell victory, Venture Global recently defeated a similar claim brought by Spanish supermajor Repsol.
The recent rulings in favor of Venture Global are a win for the entrepreneurial dive behind America’s energy dominance. The remaining cases should come out the same way. The future of energy innovation depends on courts adhering to the rule of law and holding companies — regardless of their size — to the deals they made.
