Labor Unrest in Australia Jeopardizes 10% of Global LNG, Raising Alarms for Energy Shock

Australia faces the looming risk of labor strikes at three major liquefied natural gas (LNG) plants, which can disrupt approximately 10% of the world's LNG exports and trigger a new energy price shock across Asian and European markets.

Workers at Chevron Corp. and Woodside Energy Group facilities in Australia have voted in favor of taking industrial action at the Northwest Shelf, Wheatstone, and Gorgon operations. This could potentially result in walkouts starting as early as the following week, in accordance with labor regulations.

The impact of these potential strikes has already reverberated in European natural gas markets, causing fluctuations as traders assess the possible consequences. These developments have contributed to reversing some of the previous day's 28% surge in European natural gas prices, a surge unseen since the initial weeks of Russia's invasion of Ukraine the previous year, which disrupted global fuel supplies.

Saul Kavonic, an energy analyst at Credit Suisse Group AG in Sydney, emphasized the significance of Australian LNG for global energy security. He noted that even the potential for a disruption in Australian gas supply can lead to substantial price spikes, extending as far as Europe. However, Kavonic also expressed optimism that an agreement between the parties involved would likely be reached before the situation significantly impacts the global LNG supply.

The recent increase in natural gas prices in Europe, despite its limited receipt of LNG from Australia, underscores the region's apprehensions regarding supply shortages. These concerns persist despite gas storage levels in Europe currently standing at almost 90%, surpassing the five-year average.

Workers are advocating for improved benchmark pay, better working conditions, and enhanced job security measures, including restrictions on outsourcing roles to labor hire contractors. Negotiations continue between workers and company representatives, with further discussions scheduled.

The repercussions extend beyond the Australian borders, as Japan stood as the largest buyer of LNG from Australian projects last year. Australia's LNG sector is projected to generate export earnings of approximately A$68 billion ($45 billion) in the fiscal year leading up to June 30, according to government forecasts. The ongoing labor disputes have raised concerns as they pit a few hundred workers seeking wage hikes against a multi-billion-dollar industry, revealing a staggering discrepancy in stakes. In reaction to these developments, shares in Australia's primary LNG producers have experienced an uptick. Woodside's shares gained 1.9% in Sydney trading, while Santos Ltd., a smaller industry counterpart, saw an increase of 2.6%.