European NatGas Surges 15% As Strike Threats Mount At Australian LNG Plants

Yet another stunning move in European NatGas on Tuesday as prices soared 15% following last week’s 40% jump due to increasing labor action risks in Australia. 

Bloomberg spoke with energy traders who said the Gorgon facility on Barrow Island off the northern coast of Western Australia had reduced sales over the increasing risks of a strike. 

Talks were scheduled to take place between union officials and Woodside Energy Group Ltd., one of the two companies operating the affected liquefied natural gas facilities. –BBG

A Goldman Sachs analysis revealed potential strikes at three top LNG sites operated by Chevron and Woodside Energy Group Ltd. could disrupt global supplies. These three locations account for as much as 10% of global LNG exports.

“The potential for strike action at LNG export plants in Australia once again highlights the fact that we are now clearly in a globalised gas market,” ICIS analyst Tom Marzec-Manser told the Financial Times.

“Europe has understandably backfilled Russian pipeline supply with versatile LNG. But that versatility leads to increased price volatility.”

On Monday, Australia’s Fair Work Commission approved workers at Chevron’s Wheatstone offshore platform to vote on possible industrial action. This follows earlier labor action votes for workers at Wheatstone and Gorgon downstream facilities and at Woodside’s North West Shelf. 

Australia’s Top Producing LNG Areas

Today’s news sent European benchmark NatGas futures up 15%. Prices soared 40% last week after the first report of potential labor action at various LNG facilities in Australia could threaten global supply. 

The good news for Europe is that demand for NatGas remains soft. Storage facilities across the continent are 89.45% full, the highest level for this time of year in over a decade. 

Before Europe and much of the Northern Hemisphere realize it, the heating season will arrive in the next couple of months, driving demand for NatGas higher.

The bad news is that Europe’s decoupling of reliable and cheap NatGas flows from Russia subjects it to sourcing the fuel elsewhere around the globe, making it prone to supply snarls and or what could soon be labor actions in Australia.

“The crisis is not over yet,” the chief executive of E.ON, one of Germany’s biggest utilities, said earlier this month.

“We must continue to work on the issue of austerity. This is the best way to ensure affordability for customers and also to achieve competitiveness of our society and our economy.”

If the CEO of E.ON is talking about austerity—not exactly a popular idea among regular electricity consumers—then the situation must be serious. It suggests there is no great chance of abundant LNG supply and weak competition from Asia that would make the commodity cheaper. That leaves limiting demand as the only choice.

Winter is coming