A mere threat of a strike at Australia’s LNG facilities was enough to cause its price to skyrocket! In the blink of an eye, a market that looked well-supplied and relaxed turned into a perfect wreck, with prices only rising on the prospect of unspecified industrial action at LNG plants operated by Woodside Energy and Chevron in the state of Western Australia.
The spot LNG price for delivery to North Asia rose to $11.50 per million British thermal units (mmBtu) in the week ended Aug. 11, the highest in a month and up 5.5% from $10.90 last week’s dollars. But the impact of the strike threat in Australia was keenly felt in Europe.
Notably, benchmark Dutch natural gas prices jumped 28.3% from the close on August 8 to the close on August 10 as reports of an impending strike spooked the market.
The first-month contract ended at 39.85 euros per megawatt-hour (MWh) on Aug. 10, equivalent to about $12.82 mmBtu and a two-month high.
The price fell again to close at €35.99 per MWh on August 11 as fears eased over how imminent a strike was at Australian plants, which together account for about 10% of global LNG supply.
Woodside and Chevron are engaged in talks with labor unions at the LNG facilities, and it is not yet clear what form any strike would take if no deal is reached. It could range from small actions, such as limited work stoppages, to an all-out strike.
But even the hint of a threat to supplies was enough to spook markets, a reminder of market volatility at a time when gas flows from the Russian pipeline to Europe have been curtailed following Moscow’s military intervention in Ukraine.
The bulk of the LNG produced at the three plants is headed to Japan and South Korea, but a complete shutdown would have serious implications as utilities in those two countries would be forced to scramble for spot supplies from elsewhere.
Japan is the world’s leading importer of cryogenic fuel, and South Korea ranks third behind China.
Australia competes with Qatar and the United States as the leading LNG supplier, although expansion plans for the latter two will see them overtake Australia in the coming years.
The threat of strike action at Australian plants comes as Asian LNG demand begins to pick up, as it usually does before seasonal demand peaks in the northern winter.
Asian imports rose to 21.59 million metric tons in July, up from 21.29 million in June and the most since February.
Europe’s LNG imports are moving lower as the continent’s natural gas inventories remained high and demand is shifting structurally lower as countries move to reduce dependence on fossil fuels.
Europe’s July imports were estimated at 8.77 million metric tons, the lowest since August last year, when arrivals were also 8.77 million.
August imports are estimated at 7.65 million metric tons, putting them on track to be the lowest since November 2021, according to Kpler data.
Overall, it appears that the LNG demand side is showing a seasonal uptick in Asia combined with a slowdown in Europe as the energy crisis triggered by the Russian aggression in Ukraine subsides.
However, as last week’s price action shows, the LNG market remains vulnerable to even the hint of a supply shock.
Either way, it’s shaping up to be a tough winter for households and businesses, as gas futures prices for the coming months have taken off.
In the Dutch TTF hub, September prices are traded between 36 and 35 euros per Megawatt hour. For the period October – December 2023, prices range between 40 and 51.6 euros per Megawatt hour, while in January and February 2024 the contracts climb to the region of 52 and 53 euros per Megawatt hour.
Natural gas still remains the main fuel for the production of electricity and therefore its price significantly affects the cost of electricity producers and, by extension, the final electricity bills paid by households and businesses.
Does anyone think they will have another easy winter like last year? Even the crisis in Niger may cost Europe some of its alternative sources of natural gas. The Guinea pipeline passes through Niger and Algeria has explicitly stated that it will stand by Niger if it is attacked directly or indirectly by the West.
