European natural gas jumped to a two-month high as workers at export facilities in Australia prepare for strikes that could significantly dent global supplies in the run-up to winter.
(Bloomberg) — European natural gas jumped to a two-month high as workers at export facilities in Australia prepare for strikes that could significantly dent global supplies in the run-up to winter.
Disruptions risk impacting 10% of the world’s liquefied natural gas flows, a prospect keeping traders in Europe on edge. The region is still recovering from last year’s energy crisis, when Russian supply cuts left it highly exposed to shifts in the tight global market.
Labor unions warned over the weekend that industrial action could start as soon as Sept. 2 at a facility of Woodside Energy Group Ltd. if no deal is reached in pay talks on Wednesday. That sent gas prices soaring, with benchmark futures closing 12% higher on Monday, extending this month’s gains.
The risk of strikes has increased given the ultimatum, according to ANZ Banking Group Ltd. commodity strategist Soni Kumari. “Any scramble for replacement volumes could prompt a bidding war,” she said.
Read More: LNG Strikes Could Begin Early September Amid Australia Disputes
There should be more clarity later this week after further talks, but the price rally might be short-lived for now, given Europe’s high gas storage and tepid demand, analysts at ING Groep NV said in a note. This will change only if a large part of Australian capacity goes offline, and for a prolonged period of time — at least a month or two, they added.
‘Continual Price Spikes’
Gas prices are still far from the highs of last year’s crisis, as Europe is well-stocked for winter and rarely receives fuel from Australia. However, curbed fuel shipments to Asia would raise European competition for alternative cargoes. Ballots are also taking place on potential walkouts by workers at Chevron Corp. facilities in Australia.
There’s still a chance for a resolution, as the actors involved are likely to be aware of the severity of potential consequences, according to Saul Kavonic, an energy analyst at Credit Suisse Group AG. A previous dispute, which impacted Shell Plc’s Prelude facility in Australia in 2022, lasted 76 days with an estimated $1 billion in lost production, according to unions.
Initial news reports on the possibility of looming strikes boosted intraday prices by as much as 40% earlier this month, reflecting the intensity of market jitters as Europe prepares for colder months. The continent has faced outages from its own top producer, Norway, while traders have turned more bullish.
With winter storage levels at 91% capacity — a seasonal record — Europe still lacks a big “swing” supplier like Russia to cover potential supply disruptions on short notice, Morgan Stanley analysts including Martijn Rats said in a note. Even completely full inventories, which is possible by October, do “not provide much buffer against the prospect of continual price spikes,” they said.
Dutch month-ahead futures, Europe’s benchmark, closed at €40.78 a megawatt-hour, the highest settlement price since mid-June. The UK equivalent contract also gained 12%.
–With assistance from Stephen Stapczynski and Yongchang Chin.
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