How would a strike at Australian LNG facilities affect gas markets?
LONDON, Aug 10 (Reuters) - Chevron and Woodside Energy Group said on Thursday they are holding talks with unions to avert strikes at Australian liquefied natural gas (LNG) facilities that together account for around 10% of global production.
Concerns over industrial action at Woodside's North West Shelf offshore gas platforms and Chevron's Gorgon and Wheatstone LNG plants sent European gas prices to a nearly two-month high on Wednesday on fears the move would fuel competition between Asian and European buyers for cargoes.
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WHY DOES AUSTRALIAN LNG MATTER?
Australia has kept its crown as the world’s largest LNG producer, exporting 80.9 million metric tons (MT) in 2022 compared to 79 MT in 2021, according to data from International Gas Union. The country's share of the global LNG market is estimated at 20.2%.
WHO BUYS AUSTRALIAN LNG?
Roughly three quarters of Australia's LNG exports go to four Asian buyers: China, Japan, South Korea and India, mostly under long-term contracts, and almost none to Europe. Consultancy Rystad Energy estimates that China and Japan combined purchased about 26 million metric tons of Australian LNG, more than 60% of the country’s exports, in the first half of 2023.
HOW MANY LNG FACILITIES ARE THERE IN AUSTRALIA?
There are 10 liquefaction facilities in Australia with a combined nominal capacity of 87.7 million metric tons per annum (Mtpa), according to data from the International Group of Liquefied Natural Gas Importers (GIIGNL).
Facility Capacity (MTPA) Operator
Northwest Shelf (NWS) 16.3 Woodside
Pluto T1 4.9 Woodside
Gorgon T1 - T3 15.6 Chevron
Wheatstone T1 - T2 8.9 Chevron
Darwin 3.7 Santos
GLNG T1 - T2 7.8 Santos
QCLN T1-T2 9 Shell
Prelude (FLNG) 3.6 Shell
APLNG T1-T2 9 Australia Pacific LNG
Ichthys T1 - T2 8.9 Inpex
WHICH FACILITIES WOULD BE AFFECTED BY A STRIKE?
If it goes ahead, the strike is expected to affect three of the biggest of these facilities: Northwest Shelf (NWS), operated by Woodside Energy Group, and Gorgon and Wheatstone which are both operated by Chevron.
The nameplate capacity of the three facilities exceeds 40 Mtpa and represents about 50% of total Australian production, according to Robert Songer, LNG analyst at data intelligence firm ICIS, who added that Australian exports in July were 6.46 million metric tons.
Based on a standard cargo size of 60,000 metric tons, the strike could cause a disruption of 50-60 cargoes per month, Songer and other analysts estimated.
WHAT WOULD BE THE GLOBAL IMPACT?
Analysts at Bernstein said in the worst case scenario, a shutdown of NWS, Gorgon and Wheatstone LNG would remove 41 Mtpa of LNG from the market or around 11% of supply, adding that this could result in a significant upward spike in global gas prices.
They added, however, that the dispute is likely to be resolved, given Woodside's long history of managing industrial labour disputes successfully.
ARE BUYERS LOOKING ELSEWHERE?
On Thursday, South Korea's Korea Midland Power Co (KOMIPO) issued a tender for one LNG cargo for delivery of 1.6 trillion British thermal units in October, industry sources told Reuters.
Toby Copson, global head of trading at Trident LNG, said that North Asia - mainly Japan and Korea - will be actively trying to mitigate any supply disruption after the KOMIPO move. "This in itself could prompt other players to start bidding earlier than expected to get ahead of pricing moves to the upside. We're dealing with 'what ifs' and markets respond disproportionately to implied threats such as supply imbalances or impediments," he added.
While spot LNG prices remain stable, prices for the next two months' contracts are 10-15% higher. Bernstein analysts said prices could potentially rise much higher if the strike goes ahead.
(Reporting by Marwa Rashad; Editing by Nina Chestney and Susan Fenton)