The cost of natural gas futures in the European Union (EU) reached their highest level since mid-June, as reported by the London Intercontinental Exchange (ICE). Prices for gas futures for delivery in September at the TTF hub in the Netherlands surged by nearly 40% to over €43 ($47) per megawatt-hour in household terms. Although gas prices later retreated, they continued to experience losses the following day, with the contract trading at around €38 per megawatt-hour.
This increase in prices is largely attributed to the news of a potential strike at liquefied natural gas (LNG) facilities in Australia, which is one of the world’s top three LNG exporters, along with Qatar and the US. Reports suggest that workers at Australia’s Woodside Energy Group and Chevron LNG projects have voted in favor of a strike. The strike, which is expected to start as early as next week, aims to secure higher salaries and improvements to job security. Analysts estimate that this strike could disrupt approximately half of Australia’s LNG exports.
Zongqiang Luo, a gas analyst at energy consultancy Rystad Energy, predicts that this strike will result in fewer LNG imports to Europe and contribute to a bullish outlook for gas prices in the region.
Despite European gas storage facilities being around 88% full, the decrease in exports from Australia would lower the global LNG supply, leading to increased competition for the fuel. This would create a situation where Asian and European buyers compete against each other to secure LNG cargoes, potentially leading to a price war. RBC Capital Markets analysts warn that if the strike coincides with planned maintenance at gas fields in Norway, which is the EU’s largest gas supplier, the situation may become even more challenging. Norway is expected to suspend an estimated 1.5 billion cubic meters of production in August and more than 2.5 billion cubic meters in September.
The potential impact of this strike and the maintenance in Norway highlights the vulnerability of the European gas market. As a result, countries like China may have to turn to the spot market to replace the lost contracted volumes from Australia, further driving up prices in the Asian LNG benchmark and potentially triggering another price war in Europe.
It is essential to monitor developments in the LNG market as the strike in Australia and the maintenance in Norway could have far-reaching implications for gas prices, supply, and competition.