Column: LNG’s Calm Veneer Stripped by Australia Strike Threat
The comfort that had characterised natural gas markets in Asia and Europe in recent months was shown to be a mere illusion by the threat of strike action at three major Australian liquefied natural gas (LNG) plants.
In the blink of eye, a market that had looked well supplied and relaxed was turned into a flighty wreck, with prices jumping higher on only the possibility of unspecified labour action at LNG plants operated by Woodside Energy and Chevron in Western Australia state.
The spot price of LNG for delivery to North Asia climbed to $11.50 per million British thermal units (mmBtu) in the week ended Aug. 11, the highest in a month and up 5.5% from the prior week’s $10.90.
But the impact of the strike threat at gas fields that feed the Woodside-operated North West Shelf LNG plant, Australia’s largest, and at Chevron’s Gorgon and Wheatstone operations was more keenly felt in Europe.
Benchmark Dutch natural gas prices jumped 28.3% from the close on Aug. 8 to the finish on Aug. 10 as reports of the looming strike action spooked the market.
The front-month contract ended at 39.85 euros per megawatt hour (MWh) on Aug. 10, equivalent to about $12.82 mmBtu and a two-month high.
The price eased back to end at 35.99 euros per MWh on Aug. 11 as fears eased over how imminent a strike was at the Australian plants, which together account for about 10% of global LNG supply.
Woodside and Chevron are engaging in talks with labour unions at the LNG facilities, and it’s not yet clear what form any strike action would take, assuming no agreement can be reached. It could range from minor actions, such as limited work pauses, to an all-out strike.
But even the hint of a threat to supplies was enough to spook markets, a reminder that nerves can easily be unsettled in the aftermath of last year’s surge in LNG prices as Russian pipeline gas flows to Europe were curtailed following Moscow’s invasion of Ukraine.
The bulk of the LNG produced at the three plants heads to Japan and South Korea, but a full outage would have serious ramifications as utilities in those two countries would be forced to scramble for spot supplies from elsewhere.
Japan is the world’s top importer of the super-chilled fuel, and South Korea ranks third behind China.
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Australia vies with Qatar and the United States as the top supplier of LNG, although expansion plans for the latter two will see them overtake Australia in coming years.
