From Trust to Tribunal: How Legal Battles Are Rewriting the LNG Market

From Trust to Tribunal: How Legal Battles Are Rewriting the LNG Market

The liquefied natural gas (LNG) market, long anchored in trust and long-term contracts, is being reshaped in courtrooms and arbitration chambers.

A series of high-profile disputes involving BP, Shell, Venture Global LNG, and Nigeria LNG (NLNG) has exposed how legal interpretation, market opportunism, and price volatility are colliding in an industry once prized for its stability.

BP’s Win Against Venture Global

In October 2025, BP secured a landmark arbitration victory against U.S. exporter Venture Global LNG — a case potentially worth more than USD 1 billion.

The dispute centered on the Calcasieu Pass facility in Louisiana, one of the most ambitious projects in the new wave of U.S. LNG export plants. At issue was the interpretation of delivery obligations under BP’s long-term Sales and Purchase Agreement (SPA).

BP argued that Venture Global had deliberately withheld cargoes owed under the contract by delaying the declaration of the project’s Commercial Operations Date (COD), even though the plant had been operating at near-commercial capacity for months.

According to BP, the delay allowed Venture Global to sell dozens of cargoes on the spot market — capturing prices two to three times higher than the agreed contract rate during the extraordinary volatility that followed Russia’s invasion of Ukraine.

The dispute was not just about performance but about intent. BP’s lawyers argued that Venture Global had prolonged commissioning to exploit record prices, breaching its implied duty to act as a “reasonable and prudent operator.”

The tribunal agreed. In its ruling, it found that Venture Global had acted outside the bounds of reasonable commercial conduct and that its delay in declaring COD amounted to a constructive evasion of contractual obligations.

The decision reverberated across global gas markets. Venture Global’s share price fell nearly 25% in the days following the ruling, wiping billions from its market value. Analysts called the outcome a turning point for U.S. LNG governance, warning that developers could face significant financial exposure if they manipulate commissioning timelines for short-term gain.

BP’s win is now seen as a precedent-setting judgment, reinforcing the sanctity of long-term LNG contracts.

“This case reaffirms that arbitrators will look beyond formality and test whether a seller’s conduct aligns with the commercial fairness expected under the agreement,” said one London-based energy lawyer.

For many LNG buyers, the decision represents a rebalancing of power between exporters and offtakers — a signal that long-term contractual rights can still prevail against opportunistic market behavior.

Shell’s Earlier Loss

Just months before BP’s triumph, Shell met the opposite fate — and the contrast between the two outcomes has become one of the industry’s defining paradoxes.

In August 2025, an international tribunal dismissed Shell’s USD 1.7 billion claim against Venture Global, despite strikingly similar allegations that the company had diverted cargoes during the Calcasieu Pass commissioning phase.

Shell argued that Venture Global had intentionally extended commissioning to avoid triggering long-term delivery obligations, selling dozens of cargoes to third parties at a profit while its own contracted volumes went undelivered.

Venture Global countered that its SPAs explicitly permitted pre-COD cargo sales during the testing phase. It maintained that key performance and reliability thresholds had not yet been met to declare commercial operations.

The tribunal sided with Venture Global, taking a literal approach to the contractual text. It held that Shell, as a sophisticated counterparty, had accepted the commissioning provisions at signing and that there was no evidence of bad faith or concealment.

While Shell’s defeat was a blow to buyers, legal analysts said it underscored a structural issue: the asymmetry in LNG contract drafting. U.S. developers, especially in newer projects, have increasingly retained broad discretion over COD timing — flexibility that, in volatile markets, can translate into billions in arbitrage.

“Shell’s loss exposed a blind spot,” said a European LNG trader. “If your contract doesn’t strictly define when commercial operations begin, the seller controls your exposure to the market.”

In response, European utilities have started inserting “commissioning cap” clauses in new SPAs, limiting how many cargoes can be sold outside contractual commitments before COD is declared. The trend also reflects growing regulatory unease, as U.S. LNG exports are now central to Europe’s energy security architecture.

Far Away, Another Default — NLNG and Taleveras

Thousands of miles from the U.S. Gulf Coast, another arbitration battle unfolded in West Africa — this time involving Nigeria LNG (NLNG) and Nigerian energy trader Taleveras. NLNG is majority-owned by Shell, TotalEnergies, and Eni, giving the case a distinctly international dimension.

According to filings in London, Taleveras had secured LNG cargoes from NLNG under a valid sales agreement and resold them to European traders Vitol and Glencore. When NLNG failed to deliver, the traders sought arbitration in London.

A tribunal ruled in their favour, ordering NLNG to pay approximately USD 380 million. NLNG’s appeal was later dismissed, confirming the award.

Industry sources say the dispute arose amid the post-pandemic price surge and the 2021–22 European energy crisis, when LNG spot prices reached historic highs. The timing reportedly prompted internal debate within NLNG and its shareholders over whether to prioritise long-term commitments or capture soaring spot revenues.

Documents reviewed indicate that in January 2021, NLNG commissioned KPMG to conduct an internal review codenamed Project Argun. Officially described as an exercise, specifically covering three counterparties during a period of record-high LNG prices, the review is widely seen as evidence of how extreme market volatility was forcing producers to reassess their contractual commitments — even after agreements had already been executed. The review ultimately found no evidence of wrongdoing.

Meanwhile, NLNG faces a separate arbitration with Spanish utility Endesa over long-term pricing terms — further evidence that the company, like many LNG exporters, is navigating growing legal and commercial strain.

An Industry Under Legal Pressure

BP’s victory, Shell’s loss, and NLNG’s default all point to a single truth: the LNG business is increasingly being defined not by engineering or logistics, but by law.

Where trust and 20-year commitments once underpinned the trade, recent years have revealed how volatility can tempt even major players to test the boundaries of their contracts.

“The LNG business has shifted from engineering reliability to legal survivability,” observed one London arbitration lawyer.

For developers and traders alike, the lesson is stark: in a volatile market, contract wording is currency. Every clause — from commissioning definitions to force majeure triggers — can determine whether billions are won or lost.

The surge in arbitration cases reflects an industry in transition: one caught between its legacy of predictability and a new era of price turbulence, financing pressures, and shareholder demands.

From Louisiana to Bonny Island, the message is clear: profit and principle are now competing forces — and it is increasingly the law, not the market, that decides who delivers, who defaults, and who pays.

Some industry observers believe that, in such conditions, certain suppliers have begun to devise increasingly ingenious ways of avoiding performance under previously signed contracts — seeking, in effect, to reprice or delay obligations without openly breaching them. While these practices are rarely acknowledged publicly, the growing number of arbitrations suggests that contractual flexibility has, at times, been stretched to its limits.