diff --git a/graphiti_core/llm_client/openai_base_client.py b/graphiti_core/llm_client/openai_base_client.py
index 66419819..93e9c598 100644
--- a/graphiti_core/llm_client/openai_base_client.py
+++ b/graphiti_core/llm_client/openai_base_client.py
@@ -165,8 +165,16 @@ class BaseOpenAIClient(LLMClient):
             raise Exception(f'Output length exceeded max tokens {self.max_tokens}: {e}') from e
         except openai.RateLimitError as e:
             raise RateLimitError from e
+        except openai.AuthenticationError as e:
+            logger.error(f'OpenAI Authentication Error: {e}. Please verify your API key is correct.')
+            raise
         except Exception as e:
-            logger.error(f'Error in generating LLM response: {e}')
+            # Provide more context for connection errors
+            error_msg = str(e)
+            if 'Connection error' in error_msg or 'connection' in error_msg.lower():
+                logger.error(f'Connection error communicating with OpenAI API. Please check your network connection and API key. Error: {e}')
+            else:
+                logger.error(f'Error in generating LLM response: {e}')
             raise
 
     async def generate_response(
diff --git a/mcp_server/docker/docker-compose-falkordb.yml b/mcp_server/docker/docker-compose-falkordb.yml
index ce0be322..5046f745 100644
--- a/mcp_server/docker/docker-compose-falkordb.yml
+++ b/mcp_server/docker/docker-compose-falkordb.yml
@@ -22,7 +22,7 @@ services:
       dockerfile: docker/Dockerfile
     env_file:
       - path: ../.env
-        required: false # Makes the file optional. Default value is 'true'
+        required: false
     depends_on:
       falkordb:
         condition: service_healthy
@@ -31,18 +31,6 @@ services:
       - FALKORDB_URI=${FALKORDB_URI:-redis://falkordb:6379}
       - FALKORDB_PASSWORD=${FALKORDB_PASSWORD:-}
       - FALKORDB_DATABASE=${FALKORDB_DATABASE:-default_db}
-      # LLM provider configurations
-      - OPENAI_API_KEY=${OPENAI_API_KEY:-}
-      - ANTHROPIC_API_KEY=${ANTHROPIC_API_KEY:-}
-      - GOOGLE_API_KEY=${GOOGLE_API_KEY:-}
-      - GROQ_API_KEY=${GROQ_API_KEY:-}
-      - AZURE_OPENAI_API_KEY=${AZURE_OPENAI_API_KEY:-}
-      - AZURE_OPENAI_ENDPOINT=${AZURE_OPENAI_ENDPOINT:-}
-      - AZURE_OPENAI_DEPLOYMENT=${AZURE_OPENAI_DEPLOYMENT:-}
-      # Embedder provider configurations
-      - VOYAGE_API_KEY=${VOYAGE_API_KEY:-}
-      - AZURE_OPENAI_EMBEDDINGS_ENDPOINT=${AZURE_OPENAI_EMBEDDINGS_ENDPOINT:-}
-      - AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT=${AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT:-}
       # Application configuration
       - GRAPHITI_GROUP_ID=${GRAPHITI_GROUP_ID:-main}
       - SEMAPHORE_LIMIT=${SEMAPHORE_LIMIT:-10}
diff --git a/mcp_server/docker/docker-compose-neo4j.yml b/mcp_server/docker/docker-compose-neo4j.yml
index aed5ee24..34d53e0b 100644
--- a/mcp_server/docker/docker-compose-neo4j.yml
+++ b/mcp_server/docker/docker-compose-neo4j.yml
@@ -26,7 +26,7 @@ services:
       dockerfile: docker/Dockerfile
     env_file:
       - path: ../.env
-        required: false # Makes the file optional. Default value is 'true'
+        required: false
     depends_on:
       neo4j:
         condition: service_healthy
@@ -36,18 +36,6 @@ services:
       - NEO4J_USER=${NEO4J_USER:-neo4j}
       - NEO4J_PASSWORD=${NEO4J_PASSWORD:-demodemo}
       - NEO4J_DATABASE=${NEO4J_DATABASE:-neo4j}
-      # LLM provider configurations
-      - OPENAI_API_KEY=${OPENAI_API_KEY:-}
-      - ANTHROPIC_API_KEY=${ANTHROPIC_API_KEY:-}
-      - GOOGLE_API_KEY=${GOOGLE_API_KEY:-}
-      - GROQ_API_KEY=${GROQ_API_KEY:-}
-      - AZURE_OPENAI_API_KEY=${AZURE_OPENAI_API_KEY:-}
-      - AZURE_OPENAI_ENDPOINT=${AZURE_OPENAI_ENDPOINT:-}
-      - AZURE_OPENAI_DEPLOYMENT=${AZURE_OPENAI_DEPLOYMENT:-}
-      # Embedder provider configurations
-      - VOYAGE_API_KEY=${VOYAGE_API_KEY:-}
-      - AZURE_OPENAI_EMBEDDINGS_ENDPOINT=${AZURE_OPENAI_EMBEDDINGS_ENDPOINT:-}
-      - AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT=${AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT:-}
       # Application configuration
       - GRAPHITI_GROUP_ID=${GRAPHITI_GROUP_ID:-main}
       - SEMAPHORE_LIMIT=${SEMAPHORE_LIMIT:-10}
diff --git a/mcp_server/docker/docker-compose.yml b/mcp_server/docker/docker-compose.yml
index e7c388cd..dabd709f 100644
--- a/mcp_server/docker/docker-compose.yml
+++ b/mcp_server/docker/docker-compose.yml
@@ -9,20 +9,8 @@ services:
         required: false
     environment:
       # Database configuration for KuzuDB - using persistent storage
-      - KUZU_DB=${KUZU_DB:-/data/graphiti.kuzu}
-      - KUZU_MAX_CONCURRENT_QUERIES=${KUZU_MAX_CONCURRENT_QUERIES:-10}
-      # LLM provider configurations
-      - OPENAI_API_KEY=${OPENAI_API_KEY:-}
-      - ANTHROPIC_API_KEY=${ANTHROPIC_API_KEY:-}
-      - GOOGLE_API_KEY=${GOOGLE_API_KEY:-}
-      - GROQ_API_KEY=${GROQ_API_KEY:-}
-      - AZURE_OPENAI_API_KEY=${AZURE_OPENAI_API_KEY:-}
-      - AZURE_OPENAI_ENDPOINT=${AZURE_OPENAI_ENDPOINT:-}
-      - AZURE_OPENAI_DEPLOYMENT=${AZURE_OPENAI_DEPLOYMENT:-}
-      # Embedder provider configurations
-      - VOYAGE_API_KEY=${VOYAGE_API_KEY:-}
-      - AZURE_OPENAI_EMBEDDINGS_ENDPOINT=${AZURE_OPENAI_EMBEDDINGS_ENDPOINT:-}
-      - AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT=${AZURE_OPENAI_EMBEDDINGS_DEPLOYMENT:-}
+      - KUZU_DB=/data/graphiti.kuzu
+      - KUZU_MAX_CONCURRENT_QUERIES=10
       # Application configuration
       - GRAPHITI_GROUP_ID=${GRAPHITI_GROUP_ID:-main}
       - SEMAPHORE_LIMIT=${SEMAPHORE_LIMIT:-10}
diff --git a/mcp_server/src/services/factories.py b/mcp_server/src/services/factories.py
index 5c9b8e46..3dc244b5 100644
--- a/mcp_server/src/services/factories.py
+++ b/mcp_server/src/services/factories.py
@@ -85,6 +85,9 @@ class LLMClientFactory:
     @staticmethod
     def create(config: LLMConfig) -> LLMClient:
         """Create an LLM client based on the configured provider."""
+        import logging
+        logger = logging.getLogger(__name__)
+
         provider = config.provider.lower()
 
         match provider:
@@ -92,6 +95,14 @@ class LLMClientFactory:
                 if not config.providers.openai:
                     raise ValueError('OpenAI provider configuration not found')
 
+                api_key = config.providers.openai.api_key
+                if not api_key:
+                    raise ValueError('OpenAI API key is not configured. Please set OPENAI_API_KEY environment variable.')
+
+                # Log masked API key for debugging
+                masked_key = f'{api_key[:7]}...{api_key[-4:]}' if len(api_key) > 11 else 'sk-***'
+                logger.info(f'Creating OpenAI client with API key: {masked_key}')
+
                 from graphiti_core.llm_client.config import LLMConfig as CoreLLMConfig
 
                 # Determine appropriate small model based on main model type
@@ -107,7 +118,7 @@ class LLMClientFactory:
                     small_model = 'gpt-4.1-mini'  # Use non-reasoning model for small tasks
 
                 llm_config = CoreLLMConfig(
-                    api_key=config.providers.openai.api_key,
+                    api_key=api_key,
                     model=config.model,
                     small_model=small_model,
                     temperature=config.temperature,