No ‘force majeure’ declaration as unions accuse Shell of hardball tactics at Prelude
Shell stands to lose $US150m for every lost cargo at Prelude, but has significantly slowed production amid a standoff with unions.
Shell has dramatically slowed output at its troubled Prelude floating natural gas platform as it looks for a way to walk back from a standoff with unions that threatens to cost the company up to $US450m ($655m) in lost revenue.
Shell on Tuesday issued “inability to supply” notices to customers of liquefied natural gas produced by Prelude, as well as buyers of condensate and liquefied petroleum gas, warning them it may not be able to fill scheduled cargoes until at least mid-July.
The global oil and gas giant has not formally declared a “force majeure” event at the platform, but Shell issued the notices amid protected industrial action being taken by unions operating under the Offshore Alliance banner, claiming escalating work bans authorised by the Industrial Relations Commission – due to take effect on July 1 – would not allow it to load fresh cargoes.
With storage for all three products tight on the floating platform, Shell has now significantly slowed production to about 35 per cent of the 3.6 million-tonne-a-year nameplate capacity, the company confirmed on Wednesday.
While an LNG cargo has recently departed Prelude, it is unclear how much storage of the other two products continues to be available.
Publicly available data indicates an LPG tanker is currently sitting off Prelude, suggesting it was scheduled to load a cargo in the near future and that LPG storage capacity on the platform could be near to full.
Sources on Wednesday said Shell could be forced to completely suspend production at Prelude if it has reached storage capacity limits for any of the products produced at the platform.
Negotiations with unions are ongoing and Shell’s management is believed to have sought a temporary suspension of the next round of authorised work bans amid the threat of complete suspension of output, in order to allow the company time to next week put its own pay offer direct to workers through a ballot.
But with LNG prices soaring, Credit Suisse analyst Saul Kavonic said any missed shipments could cost Shell about $US150m at current spot prices, and the company was likely to miss at least two to three shipments until the middle of July.
“An outage at Prelude would further tighten the LNG spot market. Given the missing of a single cargo, worth up to $US150m in the current market, is worth more than several fold the union demand costs, one would hope a shutdown can be avoided,” Mr Kavonic said in a client note on Wednesday.
It is understood Shell believes the union pay position would add about $40m to Prelude’s operating costs each year.
Unions say Shell is using the threat of suspending production at Prelude to pursue a hardline industrial relations agenda.
AWU national secretary Dan Walton on Wednesday said union members were only pushing a pay claim that would match “general industry standards”.
“Shell’s attempt to bully workers will cost the company tens of millions of dollars a day and hurt global customers in desperate need of gas,” Mr Walton said.
“And we are being asked to believe this is a rational escalation of an industrial dispute involving a couple of hundred workers and a few run-of-the-mill claims? None of this makes sense.”
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