Shell has initiated an arbitration case against Venture Global LNG, accusing the U.S. gas company of wrongfully earning $3.5 billion. The British oil major claims that Venture Global redirected liquefied natural gas (LNG) shipments to higher-priced spot markets instead of honoring long-term contracts with European customers. This comes after a surge in commodity prices following Russia’s invasion of Ukraine in 2022, which significantly altered the LNG market.
This arbitration is particularly ironic given Shell’s involvement in a similar legal situation with its Nigerian partner, Nigeria LNG (NLNG). NLNG was recently sanctioned by a London Arbitration Court and The High Court of Justice of England and Wales for breaching a supply contract. The dispute arose when NLNG failed to deliver 19 LNG cargoes it was contracted for, citing unprecedented hikes in spot prices. NLNG’s breach took place after a January 2020 contract, and the company’s actions were ruled as a significant disregard of contract terms.
Shell’s case against Venture Global, according to sources including the Financial Times, highlights the increasing tensions in the LNG industry, as companies grapple with market volatility and rising demand. Venture Global, a disruptive newcomer in the global LNG market, faces claims that it denied European customers their contractual cargoes, instead choosing to profit from higher spot market prices. Shell, through a study commissioned by consultancy Compass Lexicon, is seeking to prove that Venture Global’s actions resulted in wrongful earnings.
Wael Sawan, Shell’s CEO, emphasized the importance of contract sanctity in the LNG business, a market that has historically relied on trust and long-term agreements. As arbitration hearings proceed, energy companies and market watchers will be keenly observing the outcome, which could have long-lasting impacts on the LNG industry’s legal and financial landscape.
Meanwhile, NLNG’s legal battles may not yet be over, as it remains unclear whether the company will pursue an appeal of the recent judgment in the UK courts.
This situation underscores the evolving dynamics in the LNG sector, where the sanctity of long-term contracts is being increasingly tested by unpredictable market conditions and geopolitical events.