Talks are currently underway to avert strikes at three Australian gas developments, operated by Woodside and Chevron.
The threat of Australian oil and gas workers strikes resulted in European natural gas jumping above €40 for the first time since June during the middle of this week.
Benchmark futures soared as much as 40% this week, the most since March, 2022. Traders were concerned about a long-lasting strike, as Citigroup analysts predicted strikes could cause the price of European and Asian LNG contracts for January to double.
Workers at Chevron and Woodside Energy Group facilities in Australia are threatening to strike, which has the potential to disrupt LNG exports, tightening the global market.
The exact timing of the industrial action depends on the outcome of today’s talks. Workers could stop by giving seven days’ notice as early as next week, depending on progress at a meeting, the Australian Financial Review reported.
If there are supply disruptions, Asian buyers “are likely to bid up LNG imports” to replace Australian volumes, which would affect Europe as well, said Nick Campbell, a director at consultant Inspired Plc, talking with newswires.
Bullish sentiment has contributed to pressure on gas prices recently. This included a drop in LNG imports to Europe last month and increased flows from the region to Ukraine, which has spare storage capacity. Potential delays in Norway’s seasonal maintenance also posed a risk.
It’s also possible that this week’s price surge could cause a wave of position covering by investors who had previously bet on further gas price declines. Similar moves had resulted in extreme volatility in June.
Investment funds’ net-short positions in the benchmark Dutch gas futures (TTF) increased last week — after falling to the lowest level since January a week before, according to data released on Wednesday by market operator, Intercontinental Exchange.
“Significant demand destruction has been a key offset, but a narrowing global LNG pool leaves Europe exposed to price-competition for spare cargoes with Asia, particularly amid seasonally higher demand next winter,” Patricio Alvarez, an analyst at Bloomberg Intelligence said.
Industrial action could disrupt LNG operations at Woodside’s North West Shelf facility, said Jake Horslen, a senior LNG analyst at Energy Aspects, adding that Japanese buyers would be most affected by any strikes in Australia.
“Asian buyers would need to pull more strongly on Atlantic LNG to balance any shortfalls in the event of a strike, which would tighten supply fundamentals in Europe and the Atlantic,” Horslen said. “This creates upside risk for TTF.”
TTF front-month futures, Europe’s gas benchmark, traded 28% higher at €39.77 per MWh on Wednesday. The UK equivalent added 30%.
