NATURAL-GAS PRICES JOLTED BY AUSTRALIAN LABOR DISPUTE -- UPDATE
10 August 2023, 19:45, By Stuart Condie, SYDNEY
A dispute between Australian energy companies and their workers has natural-gas buyers bracing for a possible curtailment of supply from one of the world's largest exporters of the fuel.
The threat of disruptions is particularly worrisome for Europe, which is heading into its second winter since the Ukraine war cut gas supplies from Russia. Most of Australia's supply is committed to Asia, so a sudden drop in LNG exports could push European and Asian buyers into a bidding war for gas from elsewhere, including from the U.S.
Europe's energy crisis last year elevated the importance of stability of energy supply from Australia, which rivals the U.S. and Qatar as one of the world's biggest LNG exporters. Gas futures in the U.S. and Europe shot up Wednesday after workers at Australian producer Woodside Energy voted in favor of potential industrial action that could include strikes. But prices eased Thursday after U.S. energy regulators reported that domestic stockpiles grew last week by more than analysts had expected.
Workers at three LNG platforms off the coast of Western Australia voted Wednesday to take action after months of unresolved negotiations over wages and working conditions. Union officials say workers at Chevron's Gorgon and Wheatstone facilities could also vote on potential action next week. Under Australian employment law, workers can stop work within 30 days of such a vote providing they give employers seven days' notice.
"They are well aware of the hundreds of millions of dollars these companies will lose if protected industrial action slows exports of Australian gas. It's in everyone's best interest to get back to what our members know best, exporting quality Australian gas to the world," said Brad Gandy, an official with the Australian Workers' Union.
Vivek Dhar, an analyst at Commonwealth Bank of Australia, said the export facilities in Australia that could be affected by strike action accounted for 12% of global LNG exports last year based on ship-tracking data.
"With the northern winter season fast approaching, any sustained outage at these facilities threatens to meaningfully tighten traded gas markets, " Dhar said. "The winter season in the Northern Hemisphere typically sees the largest increase in gas usage in the year.
"European countries have become reliant on the supercooled fuel since Russia cut off most of the gas it used to pump to the continent and the labor dispute in Australia swiftly reverberated through global markets.
Benchmark European natural-gas prices surged 28% Wednesday. Prices retreated some Thursday, but remained roughly 19% higher than on Tuesday.
U.S. gas futures traded about 5.8% lower Thursday at about $2.79 per million British thermal units, down more than 60% from a year ago, when Europe's scramble for fuel pushed prices to shale-era highs and helped stoke broad inflation. U.S. futures had climbed 6.6% on Wednesday following the Woodside ballot.
Prices for LNG exported from the U.S. Gulf Coast rose, as did the cost of transporting the fuel to Europe or Asia, according to data provider Argus Media.
Traders said the initial leap in European prices was exacerbated because many market players had bet on further price declines. When the market moved against them, some cut losses by buying back gas they had sold, pushing prices yet higher. Hedging trades related to positions in the options market further boosted European prices, traders said.
Prices in Europe are still far lower than their all-time highs from just under a year ago after Moscow first slashed natural-gas flows. Yet a strike lasting beyond October could push Asian LNG and European natural-gas prices for the Northern Hemisphere winter to almost double from those seen early this week, Citi analysts said in a note.
A spokesperson for Woodside said that the producer had reached an in-principle agreement with workers on a number of issues and that talks were progressing positively. Woodside, Australia's seventh-largest company by market capitalization, said it has contingency plans in case of disruption.
"Our employees have demonstrated willingness over a number of years to work constructively with us to resolve issues. We are hopeful that this approach will continue," the spokesperson said.
Chevron didn't immediately respond to requests for comment.
European nations have been stockpiling gas in an attempt to avoid a repeat of the crippling price spikes seen last winter. They could breach storage-capacity limits by mid- to late-September if producers in Australia can head off a strike, allowing LNG prices in Europe and Asia to fall by up to 50% by the end of October, the Citi analysts said.
Still, others said the potential strike action in Australia wasn't the only driver of global gas-supply concerns. Dhar, of Commonwealth Bank, said Peru LNG doesn't appear to have loaded a cargo since late July and the Corpus Christi facility in the U.S. is running some 15% below its average utilization rate.
Joe Wallace and Ryan Dezember contributed to this article.
Write to Stuart Condie at
stuart.condie@wsj.com
(END) Dow Jones NewswiresAugust 10, 2023 12:45 ET (16:45 GMT)Copyright (c) 2023 Dow Jones & Company, Inc.
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