LNG facility strikes in Australia raise European concerns

Strike action at three LNG facilities in Australia, a key player in the global LNG market, has raised concerns in Europe as the ongoing dispute between employers and employees could have a significant impact on global gas supply and, by extension, the price of the Dutch TTF futures contracts.

The strike action, taking place at facilities that account for roughly 10 percent of global supply, has destabilized the European natural gas market over the past few weeks.

Europe needs to prepare for the possibility of further instability and price rises as it remains unclear how the ongoing dispute at the LNG facilities in Australia will play out, the Institute for Energy Economics and Financial Analysis (IEEFA) noted in a report.

North West Shelf, an LNG facility run by Woodside Energy, and two Chevron-run facilities, Gordon and Wheatstone, could be affected by the ongoing strike action, IEEFA warned. All three facilities, combined, represent roughly 10 percent of global LNG supply.

Australia, along with Qatar and the USA, represent nearly 60 percent of global LNG supply. Although the majority of Australian LNG exports are destined for Japan, China and South Korea, the disruption caused by the strikes will lead to Asia and Europe competing for LNG.

LNG order costs fall as much as 40% below TTF prices

The cost of LNG orders placed in recent days has fallen 10 to 40 percent below levels at the Dutch TTF exchange, driven lower by fine weather around Europe and subdued demand in Asia as a result of lockdown restrictions imposed over the past two months by authorities in China, insisting on a zero-Covid policy.

LNG price levels are also lower at the TTF exchange, easing to levels between 93.5 and 94 euros per MWh, the lowest since February.

Market pressure has also eased as a decision by Ukraine to disrupt a pipeline supplying Russian gas to Europe has had less negative impact than initially feared.

Ukraine’s decision, believed to have been taken to pressure the West for stricter sanctions against Russia, prompted Russia’s Gazprom to find a bypass solution through alternative routes to the EU.

These developments could lead to a significant reduction in wholesale electricity prices as a result of less price pressure faced by electricity producers.

The duration of China’s lockdown will greatly shape LNG market developments. For the time being, LNG orders that had been intended for China are being redirected to Europe.

Though supply to Asia has fallen considerably from high levels recorded just months ago, LNG demand typically increases in China, Japan and South Korea during summer.