Weak demand weighs on LNG prices, Australian workers' strike adds volatility

LNG prices have eased across Europe and Asia due to weak pre-winter demand, but a strike action at two of the biggest LNG export facilities in Australia could keep the market volatile in the near-term.

PHOTO: A graphic representation of an LNG Tanker. Getty Images

Workers at the oil and gas producer Chevron's Wheatstone and Gorgon LNG facilities in Australia began a strike action over pay-related disputes on 8 September, following failed negotiations with the company, the Offshore Alliance workers' union said. The anticipation of work stoppages at the two plants, which together produce 6% of global LNG, had lifted LNG prices to multi-month highs late last month. The LNG produced in these two facilities is typically exported to Asia.

Dutch TTF natural gas futures, the benchmark for pricing of European LNG, jumped 10% to around €35/MWh ($38/MWh) on Friday when the strike began. It is currently trading around the same level, prices are still 22% lower than the two-month high of €45/MWh ($48/MWh) hit on 22 August, when the market reacted to the threat of these strikes.

LNG prices generally decline at this time of the year as demand from power generation markets slows down over the Autumn. However, countries that generally demand higher LNG over the winter for heating are "very comfortable" with enough stocks available in European storage and additional nuclear capacity displacing gas demand in Asia, according to Rystad analysts.

Recent economic data from Germany also points to a bearish picture for LNG demand for the rest of the year, Rystad says.

"The potential impact of the strikes is likely the only bullish element in the near-term market, given we have now entered the pre-winter shoulder season and other indicators are bearish in both Europe and Asia," Rystad says.

By Debarati Bhattacharjee

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