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European natural gas prices jumped as workers serving a key export project in Australia prepare for a strike that could put a significant dent in global supplies in the run-up to winter.
Disruptions in Australia risk impacting 10% of global liquefied natural gas exports, a prospect that has kept European traders on edge this month since the strike talks began. The continent 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 the industrial action could start as soon as Sept. 2 if no deal is reached in pay talks with Woodside Energy Group Ltd., the operator of the plant, causing benchmark gas futures to soar as much as 18% on Monday. The prospect of strikes has increased given the ultimatum, said ANZ Banking Group Ltd. 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
While gas prices are still far from the highs of last year’s crisis — Europe is well-stocked for winter and rarely receives fuel from Australia — traders are on edge because curbed fuel shipments to Asia would raise competition for alternative cargoes.
Initial news reports on the potential strikes earlier this month boosted intraday prices by as much as 40%, reflecting the intensity of market jitters as the continent prepares for winter. It has also had to deal with outages in its own top producer, Norway, while traders have turned more bullish. Ballots are also taking place on potential walkouts by workers at Chevron Corp. facilities in Australia.
While there should be more clarity later this week after further talks take place on Wednesday, the price rally might be short-lived for now given Europe’s high gas storage, analysts at ING Groep NV said in a note. A “significant change in European fundamentals” is possible only if a large part of Australian capacity goes offline, and for a prolonged period of time — at least a month or two, they said.
There’s still a chance for a resolution, as the actors involved are likely to be aware of the severity pf 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 a year ago, lasted 76 days with an estimated $1 billion in lost production, according to unions.
“Everyone involved has learned the lessons from Prelude last year and don’t want to see that repeated,” said Kavonic.
Dutch front-month futures traded 9.7% higher at €39.95 a megawatt-hour by 9:45 a.m. in Amsterdam. The UK equivalent contract also gained 11%.
