CLYDE RUSSELL: Strike action threat roils Asian and European natural gas markets
A market that had looked well supplied was turned into a flighty wreck overnight, with prices jumping on the possibility of labour action
14 August 2023 - 08:07
byClyde Russel
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Launceston, Australia — The comfort that had characterised natural gas markets in Asia and Europe in recent months was shown to be a mere illusion by the threat of strike action at three major Australian liquefied natural gas (LNG) plants.
In the blink of eye, a market that had looked well supplied and relaxed was turned into a flighty wreck, with prices jumping higher on only the possibility of unspecified labour action at LNG plants operated by Woodside Energy and Chevron in Western Australia state.
The spot price of LNG for delivery to North Asia climbed to $11.50 per million British thermal units (mmBtu) in the week ended August 11, the highest in a month and up 5.5% from the prior week’s $10.90.
But the impact of the strike threat at gas fields that feed the Woodside-operated North West Shelf LNG plant, Australia’s largest, and at Chevron’s Gorgon and Wheatstone operations was more keenly felt in Europe.
Benchmark Dutch natural gas prices jumped 28.3% from the close on August 8 to the finish on August 10 as reports of the looming strike action spooked the market.
The front-month contract ended at €39.85 per megawatt hour (MWh) on August 10, equivalent to about $12.82 mmBtu and a two-month high.
The price eased back to end at €35.99 per MWh on August 11 as fears eased over how imminent a strike was at the Australian plants, which together account for about 10% of global LNG supply.
Woodside and Chevron are engaging in talks with labour unions at the LNG facilities, and it is not yet clear what form any strike action would take, assuming no agreement can be reached. It could range from minor actions, such as limited work pauses, to an all-out strike.
Serious ramifications
But even the hint of a threat to supplies was enough to spook markets, a reminder that nerves can easily be unsettled in the aftermath of last year’s surge in LNG prices as Russian pipeline gas flows to Europe were curtailed after Moscow’s invasion of Ukraine.
Most of the LNG produced at the three plants heads to Japan and South Korea, but a full outage would have serious ramifications as utilities in those two countries would be forced to scramble for spot supplies from elsewhere.
Japan is the world’s top importer of the super-chilled fuel, and South Korea ranks third behind China.
Australia vies with Qatar and the US as the top LNG supplier, though expansion plans for the latter two will cause them to overtake Australia in coming years.
The strike threat at the Australian plants comes as Asia’s LNG demand starts to tick up, as it usually does before peak seasonal demand in the northern winter.
Asia’s imports rose to 21.59-million metric tonnes in July, up from 21.29-million metric tonnes in June and the most since February, according to data compiled by commodity analysts Kpler.
Trending lower
August arrivals are expected to increase further with Kpler assessing Asia imports at 21.90-million metric tons so far, a figure that may be revised higher as more cargoes are tracked.
Europe’s LNG imports in contrast have been trending lower as the continent’s natural gas storages remained elevated and demand shifts structurally lower as countries move to reduce reliance on fossil fuels.
Europe’s imports in July were assessed at 8.77-million metric tonnes, the lowest since August last year when arrivals were also 8.77-million metric tonnes.
August imports are assessed at 7.65-million metric tonnes, putting them on track to be the lowest since November 2021, according to Kpler data.
Overall, it seems the demand side of LNG is witnessing a seasonal uptick in Asia combined with an easing in Europe as the energy crisis sparked by the Russian attack on Ukraine fades.
However, as last week’s price action shows, the LNG market remains vulnerable to even the suggestion of a supply shock.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
CLYDE RUSSELL: Strike action threat roils Asian and European natural gas markets
A market that had looked well supplied was turned into a flighty wreck overnight, with prices jumping on the possibility of labour action
Launceston, Australia — The comfort that had characterised natural gas markets in Asia and Europe in recent months was shown to be a mere illusion by the threat of strike action at three major Australian liquefied natural gas (LNG) plants.
In the blink of eye, a market that had looked well supplied and relaxed was turned into a flighty wreck, with prices jumping higher on only the possibility of unspecified labour action at LNG plants operated by Woodside Energy and Chevron in Western Australia state.
The spot price of LNG for delivery to North Asia climbed to $11.50 per million British thermal units (mmBtu) in the week ended August 11, the highest in a month and up 5.5% from the prior week’s $10.90.
But the impact of the strike threat at gas fields that feed the Woodside-operated North West Shelf LNG plant, Australia’s largest, and at Chevron’s Gorgon and Wheatstone operations was more keenly felt in Europe.
Benchmark Dutch natural gas prices jumped 28.3% from the close on August 8 to the finish on August 10 as reports of the looming strike action spooked the market.
The front-month contract ended at €39.85 per megawatt hour (MWh) on August 10, equivalent to about $12.82 mmBtu and a two-month high.
The price eased back to end at €35.99 per MWh on August 11 as fears eased over how imminent a strike was at the Australian plants, which together account for about 10% of global LNG supply.
Woodside and Chevron are engaging in talks with labour unions at the LNG facilities, and it is not yet clear what form any strike action would take, assuming no agreement can be reached. It could range from minor actions, such as limited work pauses, to an all-out strike.
Serious ramifications
But even the hint of a threat to supplies was enough to spook markets, a reminder that nerves can easily be unsettled in the aftermath of last year’s surge in LNG prices as Russian pipeline gas flows to Europe were curtailed after Moscow’s invasion of Ukraine.
Most of the LNG produced at the three plants heads to Japan and South Korea, but a full outage would have serious ramifications as utilities in those two countries would be forced to scramble for spot supplies from elsewhere.
Japan is the world’s top importer of the super-chilled fuel, and South Korea ranks third behind China.
Australia vies with Qatar and the US as the top LNG supplier, though expansion plans for the latter two will cause them to overtake Australia in coming years.
The strike threat at the Australian plants comes as Asia’s LNG demand starts to tick up, as it usually does before peak seasonal demand in the northern winter.
Asia’s imports rose to 21.59-million metric tonnes in July, up from 21.29-million metric tonnes in June and the most since February, according to data compiled by commodity analysts Kpler.
Trending lower
August arrivals are expected to increase further with Kpler assessing Asia imports at 21.90-million metric tons so far, a figure that may be revised higher as more cargoes are tracked.
Europe’s LNG imports in contrast have been trending lower as the continent’s natural gas storages remained elevated and demand shifts structurally lower as countries move to reduce reliance on fossil fuels.
Europe’s imports in July were assessed at 8.77-million metric tonnes, the lowest since August last year when arrivals were also 8.77-million metric tonnes.
August imports are assessed at 7.65-million metric tonnes, putting them on track to be the lowest since November 2021, according to Kpler data.
Overall, it seems the demand side of LNG is witnessing a seasonal uptick in Asia combined with an easing in Europe as the energy crisis sparked by the Russian attack on Ukraine fades.
However, as last week’s price action shows, the LNG market remains vulnerable to even the suggestion of a supply shock.
Reuters
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