Calcasieu Pass foundation customers nudge operator to start commercial service

Some foundation customers of Venture Global LNG's Calcasieu Pass want the operator to declare the Louisiana export facility ready for commercial service soon to allow their long-term contracts containing a fixed liquefaction fee to kick in, amid high spot prices, market sources said.

Such a move would ease the cost of filling their own consumption needs as winter approaches and give the customers including Shell, Britain's BP, Spain's Repsol and Poland's PGNiG the ability to resell some supplies to capture the wide spread between what they would be paying and what they could fetch for those volumes on the spot market. Calcasieu Pass also has short-term deals with China's CNOOC and the trading arm of China's Sinopec.

At the same time, the longer Calcasieu Pass can operate on a commissioning, or pre-commercial operation date, basis, the more opportunity it has to reap those same benefits from current market fundamentals, with Russia's seven-month-old war in Ukraine lifting delivered LNG prices. That's because the long-term contracts carry some of the lowest fixed liquefaction fees among US exporters, with some said to be below $2/MMBtu. The cost of feedgas, plus a premium, also is borne by the offtaker. US FOB cargo values reached a record high of $73.35/MMBtu Aug. 26, before falling by half since then.

The operator began production in January and has shipped more than 40 cargoes since it started exporting LNG in March, months earlier than expected, and in May US regulators gave Calcasieu Pass permission to enter the first four train blocks into commercial service, though 132 days later as of Sept. 22 it had yet to publicly do so. By comparison, Cheniere publicly disclosed it had placed its first LNG train at Sabine Pass in Louisiana into commercial service 29 days after it received approval from the regulator to do so, while it was 24 days for the first train at Sempra Energy's Cameron LNG, also in Louisiana. Data on feedgas deliveries suggest Calcasieu Pass has been operating at or near capacity for weeks.

"They are having the longest commissioning period I have ever seen," one Atlantic LNG market source said.

Three Venture Global officials did not respond to multiple calls and emails seeking comment.

The earliest commercial operation date for the long-term contracts underpinning the terminal is in January, and from there Venture Global has a 270-day window thereafter to achieve commercial operability and begin deliveries under the agreements, according to Moody's Investors Service, which said in a report in August that the extended commissioning has "meaningfully enhanced" Venture Global's cash position relative to remaining capital expenditures. Some foundation customers, based on communications with Venture Global, are concerned the operator will declare commercial startup toward the back end of the allowed window, sources said.

"They'll just do what they're allowed to do under their contracts," a second Atlantic LNG market source said.

Not all of Calcasieu Pass' foundation customers were concerned about the timing of when Venture Global declares a commercial operation date for the terminal. One long-term buyer from the terminal was balanced in terms of supply for the near term.

"Looks like it will happen next year, which matches our expectations," a third Atlantic LNG source said.