Strike Threats at Australian LNG Export Terminals Cause Volatility in European Gas Hubs
The threat of strikes at several Australian LNG export terminals has resulted in significant volatility in European gas hubs, despite high mid-summer gas stocks. The TTF front-month market experienced a surge in prices, reaching €44/MWh during the 9 August trading session. Although it closed at €38.75/MWh, the day-on-day increase of close to 26% or just under €8/MWh was notable. This level of fluctuation has not been observed in the Dutch front-month market since 1 November 2022 when gas consumption typically rises between November and December.
The spike in prices was driven by fears of disruptions to Australian LNG loadings, which would force Asian buyers to seek replacement cargoes and subsequently impact Europe. However, it remains unclear how substantial the supply disruption could be if the strikes proceed, leading to speculation that the effect may be limited. Other factors contributing to the price rally include reduced LNG supply availability elsewhere due to maintenance, a downward revision in wind generation forecasts in Europe, and projections of prolonged hot weather in certain parts of southern Europe.
While EU gas stocks are currently exceptionally high for mid-summer, standing at nearly 87%, the global gas market remains delicately balanced. The reduced supply-side flexibility resulting from decreased Russian gas entering Europe means that any unexpected changes to the global supply-demand balance can have a magnified effect on prices.
If Australian liquefaction terminals experience prolonged disruptions similar to those seen at Shell’s Prelude terminal in the third quarter of last year, competition between Asian and European firms for Atlantic-basin cargoes could intensify. The situation is particularly relevant given that some members of the Offshore Alliance (OA) union, who are employees of Woodside, voted in favor of protected industrial action on 9 August. Legalizing strikes under Australian law, the OA has also made an application to Australia’s Fair Work Commission to hold a protected action ballot for downstream workers at Chevron’s Wheatstone LNG and at the Gorgon LNG plant.
Meanwhile, the Northwest Shelf facility is scheduled for maintenance later this month, which will temporarily reduce capacity. While concerns have been raised about potential disruptions to deliveries, buyers have yet to receive any updates. Chevron has been informed of the possibility of strikes in September if its workers vote to support industrial action. Protected action requires a 120-hour notice period and can involve a range of activities, such as refusing to load LNG carriers.
Woodside, the operator of the Northwest Shelf terminal, has contingency plans in place to address any production challenges. The company remains hopeful that it can continue working constructively with its employees to resolve issues.
Overall, the uncertainty surrounding potential strikes and supply disruptions at Australian LNG export terminals has led to increased volatility in gas prices at European hubs. While the high gas stocks in Europe provide some buffer, the finely balanced global gas market and reduced supply-side flexibility necessitate caution and preparedness in managing unexpected changes to the supply-demand balance.
