I had the opportunity to speak with Andrew Geoghan and discuss the potential impacts of planned industrial action in Western Australia’s gas sector. Please click on the link below to access and watch the interview:
https://ausbiz.com.au/media/potential-chevron-strike-could-drive-up-global-lng-prices-?videoId=31336
Western Australian Gas Production Threatened
The planned strike by workers of Chevron Energy is significant because Australia is one of the world’s biggest LNG producers, and it therefore has the potential to impact the availability of gas in world markets, and also pricing. Even at this early stage, we’ve seen Europe’s gas benchmark rise by 10.5 per cent as a result of the planned strike.
Figure 1: European benchmark gas prices since March.
Unions will launch work bans and 10-hour daily stoppages at Chevron’s Gorgon and Wheatstone LNG projects in Western Australia from next week and escalate the action every week after that. Wheatstone is one of Australia’s largest resource developments and the nation’s first LNG hub. The facilities, including the Gorgon and Wheatstone onshore processing plants and the Wheatstone offshore platform, supply about 7 per cent of globally traded LNG.
The market had already been on edge this month amidst the possibility of labour disputes, which have the potential to limit global supplies during a crucial period as Europe prepares for winter.
Figure 2: Performance of crude oil prices in 2023.
There’s also the potential domestic impact, as the Gorgon and Wheatstone plants are also by far the biggest suppliers of gas to the WA domestic market, and a full shutdown would hit several industrial and mining operations across the state. They accounted for 29 per cent and 18 per cent, respectively, of WA domestic gas supplies in the March quarter of 2023. Domestic customers of Gorgon and Wheatstone include gold miner Newcrest and South32’s Worsley alumina refinery.
The news highlights the supply-side risks in the oil and gas sector. We’ve already seen crude oil prices trading strongly around $80 per barrel on low inventory levels in the USA and consumption levels that are close to record highs. This represents a positive outlook for our major energy players, like Woodside and Santos, which have performed solidly in share price terms in 2023, up ~10 per cent in share price terms.
Figure 3: Share price performances of Woodside and Santos in 2023.