US LNG Hitting Significant Financial and Legal Hurdles

This year has seen a fever-pitched “gold rush” from the US gas industry, racing to rapidly expand methane gas (LNG) export terminals on the US Gulf Coast. The dash for gas has been fueled by the Trump administration’s gutting of regulatory oversight and rubber stamping of any permit with a whiff of gas, but is now encountering notable hurdles as the basic economic math doesn’t match the ideological fervor. Industry execs and analysts are now recognizing that the “window is closing” quickly for new and expanded methane terminals across North America, the largest proposed fossil fuel buildout in a generation.

This trend is evident in the mounting recent headwinds for methane projects in Southwest Louisiana. For example, terminals currently under construction, like Venture Global’s CP2, face ongoing operational disasters, legal losses, financial uncertainty, and growing community opposition to its social license to operate.

As recent developments demonstrate overall, the underlying financial, legal and reputational risks for banks and insurers backing the methane (LNG) industry’s risks to community health, protected ecosystems, and the local seafood industry are becoming untenable.

CP2 AND SOUTHWEST LOUISIANA LNG EXPERIENCING SETBACKS

Fitch and S&P Ratings Raises Flags on Venture Global Finances – Both Fitch and S&P recently revised their financial outlook on Venture Global to “negative,” citing its recent loss in a significant legal arbitration brought by BP seeking over $1 billion in damages after the breach of its long term contract. Fitch and S&P cite concerns over Venture Global’s ability to pay a determination considering there are four other similar pending cases from its soured customers. Fitch puts this all in the context of Venture Global’s risky business model that seeks to boost short-term gains at the expense of long term legal and financial risk to its customers and financiers. This model puts the gas exporter in a double bind, in which to mitigate the legal risk it would have to abandon its core business model by signing longer-term contracts that would, ironically, mean a reduction in cash flow-from lower market prices – and hamper its ability to pay pending determinations. This is further complicated by Fitch’s assessment that Venture Global has a high commodity exposure risk to the volatile gas market and is highly leveraged when compared to peers. This vulnerability is visible in the company’s recent move to increase the cost estimate for CP2 by $1.5 billion. All of this news adds to what has been a rough year when the company’s IPO release was one of the biggest flops in history.

Venture Global CP2 Construction Disaster – Another concern that both Fitch and S&P Ratings cited is the ongoing risks associated with construction and operational challenges that could dampen its cash flow and open it to further legal and financial exposure. This risk is unfolding in real time with the ongoing CP2 construction disaster that began in early August when large amounts of dredging sludge overflowed into fragile ecosystems and public waterways that are the lifeblood of the local seafood industry, devastating the livelihoods of small scale commercial fisherfolk. A coalition of local and national groups recently filed a lawsuit in federal court to halt construction and submitted an opening brief detailing the harmful impacts. Local oyster fisherfolk have been hit particularly hard as living oyster reefs were destroyed by the disaster prior to the anticipated November 1st season opener.

• Studies Confirm Spill – Government regulators with the Louisiana Department of Energy and Natural Resources (LDNR) have since found that approximately 9,000-18,000 cubic yards of dredging sediment overflowed into fishing waters and public wetlands. This is the upwards equivalent of over 5-6 football fields of sludge a third of a meter high. Venture Global continues to claim that its sediment breach did not reach the Calcasieu Lake public waterways despite recent scientific studies from the Louisiana Department of Wildlife and Fisheries (LDWF) that confirm otherwise and found dredge sediment covering nearby oyster beds. This scene has unfolded in media publicized videos depicting local fisherfolk hauling in fishing equipment coated in dredge sludge.
• Legal Risks & Claims – The risks from legal action and regulatory noncompliance are already mounting as well as demands from fishing families, who rely on the impacted waterways are seeking compensation for loss of catch and future losses. Additionally, the project now faces multiple legal challenges from impacted residents and national organizations, like the recently filed federal lawsuit and reporting detailing its long-standing record of Clean Air Act violations, along with other lawsuits to vacate its core state and federal operational permits. These litigations could result in further delays for CP2.

Commonwealth LNG Permit Vacated for Risks – A Louisiana State Court recently terminated the permit for Commonwealth LNG, a terminal proposed near Venture Global’s Calcasieu Pass LNG. Dealing a significant blow to the project, the court ruled that the Louisiana Department of the Environment and Natural Resources (LDENR) failed to consider the environmental impacts on the surrounding communities of color and low-income communities. Adding that it did not consider the impacts on the global climate and local ecosystems. Some consider this ruling a “warning shot over the bow” that could establish a precedent for additional permitting challenges for other nearby projects, like CP2.

Cameron LNG Expansion Delayed – The proposed expansion plans for Cameron LNG in Southwest Louisiana was delayed citing regulatory compliance, logistics, and ongoing efforts to secure customers as the reasons stated in its request to the Federal Energy Regulatory Commission (FERC).

Lake Charles LNG Delayed – Energy Transfer Partners, the company behind this methane export terminal, decided to delay the final investment decision (FID) for the site to 2026, according to Bloomberg. Yet another delay for a terminal plagued by delays.

Industry Supply Glut – The gas industry’s not-so-secret fear of an impending supply glut is starting to be spoken out loud and risks shaking investor confidence. Recently industry execs warned of an “irrational exuberance” to expand LNG terminals reaching a financial investment decision (FID) that risks further accelerating the supply glut that could hurt the industry and spell higher energy prices for US consumers and businesses writ large.

COMPOUNDING RISKS FOR FINANCIERS AND INSURERS

In addition to the immediate financial, legal, and reputational risks for banks and insurers backing the methane expansion in Southwest Louisiana, it would create negative externalities that devastate local communities’ health and livelihoods, threaten protected species and ecosystems, and fuel the climate crisis. The International Energy Agency has emphasized that building new methane export terminals creates stranded assets, undermines global efforts to transition to low-carbon economies, and is not compatible with a livable climate. These factors put further strain on the growing insurability crisis, increase destabilizing physical impacts on terminals—like hurricanes and sea level rise—and create staggering net losses and disruptions to global supply chains.

The mounting evidence of real time and future risks is a clear warning to financial institutions that US Gulf Coast methane expansion, like Venture Global’s CP2 and CP3, poses significant risks to its financiers’ and insurers’ reputational and financial interests.