Gas prices jump as Australian LNG workers strike

Global impact possible as facilities account for 7% of world supply

Liquefied natural gas workers at key Chevron Corp sites in Australia began partial strikes on Friday after talks failed to reach an agreement in a dispute that has rattled global gas markets.

Benchmark gas futures in Europe jumped as much as 13% on the news, which highlights the region’s vulnerability after last year’s energy crisis. Spot LNG in Asia also gained.

Partial strikes began at 1pm Perth time at the Gorgon and Wheatstone facilities, which accounted for about 7% of global LNG supply last year. Gorgon is the world’s third-largest gas liquefaction plant by capacity.

Members of the Offshore Alliance union said they would stop work completely for two weeks starting Sept 14.

The two sides have been in negotiations for about two years, but they have been unable to agree on issues including pay, job security, scheduling and transparency over work classification, the unions said.

The start of the industrial action marks the culmination of weeks-long discussions that have kept markets on edge. Unions first threatened to pursue strikes at the Chevron sites and Woodside Energy Group facilities in early August.

Since then, Woodside has reached a compromise deal with workers, while Chevron and its workers remain apart on several key claims.

Friday’s partial strikes include a work stoppage and bans on carrying out overtime and some other duties.

Chevron’s “bargaining performance has been the most inept effort of any employer the union has dealt with in the past five years and our members have had enough”, Offshore Alliance said in a post on Facebook earlier on Friday.

The impact on LNG shipments is not likely to be immediate, and gas consumption is currently muted in both Europe and Asia. Still, the prospect of disruptions to future supply has sent prices higher as it threatens greater competition for cargoes during peak demand in the northern hemisphere winter.

Friday’s initial strikes “appear lower-level, designed to create costs and inefficiencies for Chevron, but not yet impact production materially”, said Saul Kavonic, an energy analyst at Credit Suisse.

However, the situation is likely to change if a compromise isn’t found by Sept 14, according to Leo Kabouche, an analyst with Energy Aspects Ltd.

Japanese buyers

Japan is the biggest buyer of LNG from Chevron’s Australian affect impact production, Osaka Gas Co, which has a stake in Gorgon, will consider alternatives if its supply is affected, a spokeswoman said. Tokyo Gas Co, which also has a stake in the plant, said it is checking on impact to its LNG procurement.

Tohoku Electric Power Co, which has a purchase agreement with Wheatstone, does not foresee an impact on its procurement plans for the time being, according to a spokesperson.

Besides Japan, big customers for Australian gas exports include China, Taiwan, South Korea and Thailand, which accounted for about 4% of Australia’s LNG exports in 2022n.

The Dutch front-month gas was trading up 11% at €36.34 a megawatt-hour ($11.43 per million British thermal unit) in Amsterdam on Friday afternoon. Spot LNG in North Asia for cargoes delivered in October added 5.3% to $13.34 per MMbtu, according to S&P Global.

Europe almost never receives fuel from Australia, but curbed LNG shipments to Asia would raise competition for alternative cargoes.

While gas prices in Europe are just a fraction of what they were after the Russian invasion of Ukraine last year, they are still elevated compared with pre-war levels and most market players expect the high volatility to persist.

The continent’s gas storage sites are about 93% full, well ahead of the heating season, but inventories are not designed to cover winter consumption in full. The region relies heavily on stable LNG shipments after losing most of its pipeline-supplied gas from Russia in 2022.