Shell cancels shipments from troubled Prelude gas facility as industrial dispute boils over
A wages dispute has heated up at Shell’s troubled Prelude floating natural gas plant, with the energy giant cancelling shipments to customers in the middle of a global energy crisis.
An industrial dispute boilover has forced lucrative gas exports to be cut from one of Australia‘s newest LNG plants, adding to a worsening gas crunch amid an escalating global energy crisis.
Shell cancelled shipments from its troubled Prelude floating liquefied gas facility in another blow to global gas supplies, confirming on Tuesday it had notified customers on Tuesday it had cancelled cargoes until “at least mid-July”, amid union claims the company was preparing to lock out workers at the offshore facility.
The global energy giant has been at loggerheads with unions over a pay claim for months, with unions operating under the banner head of the Offshore Alliance winning permission to take protected industrial action – including a ban on “any work to facilitate the side-by-side mooring of tankers or vessels” – from June 22.
Despite the Industrial Relations Commission approving the work bans, Shell on Tuesday stopped loading LNG at the remote offshore facility. Industry sources say each cargo is likely to be worth about $US120m at spot prices.
Union say members due to fly out to the facility on Wednesday have been told not to turn up to the airport over bans on “generating or signing permits” at the facility.
“A direction has been received not to mobilise personnel to the facility who have scope which will be undertaken under a permit given they will be unable to perform their work”, a text to employees, seen by The Australian, says.
A spokesman for Shell said on Wednesday there was no lockout of workers at Prelude.
AWU national secretary Dan Walton said on Tuesday company officials had previously threatened to “shut down” Prelude rather than agree to the union’s position.
“Our negotiators couldn‘t believe what they were hearing when this threat was made. It is insane that Shell would threaten to shut down a multi-billion gas facility, in the middle of a national gas crisis, as leverage in a standard enterprise agreement negotiation,” he said.
“Doubtless Shell management will try to claim that their hand has been forced but this just cannot be true. The union‘s industrial action has been ticked off by the Fair Work Commission and cannot interfere with the fundamental viability of the facility.”
A spokeswoman for Shell said the company “recognises the entitlement of all workers to exercise their rights, including the right to participate in industrial action”.
“We work hard to provide a strong employee value proposition for our employees, which is competitive with industry peers. We continue to engage with our people and their representatives and remain committed to acting fairly, respectfully and transparently at all times during the bargaining process.”
Unions and Shell have been arguing over a new enterprise agreement for months, with unions pushing for a 30 per cent increase to the allowance given to workers working offshore, to $117,000 a year, and a range of improvements to conditions – and for bans on the introduction of contract workers.
In turn Shell has threatened to take its own offer directly to its workers, with a ballot to be held next week.
The halt on exports from Prelude will further exacerbate a global gas market squeeze with spot LNG prices trading at seasonal records and several major Asian nations including Japan and Pakistan grappling with the threat of blackouts amid shortages of the fossil fuel.
Global LNG demand increased by 6 per cent last year and is back in favour again this year with major producers operating at full capacity and spot prices in Asia nearing $40 per million British thermal units, triple normal levels of the last few years.
Shell restarted the shipment of LNG cargoes from its troubled $US12bn ($16bn) Prelude floating LNG project in April after an electrical fault forced a shutdown of the floating vessel in December 2021.
The addition of the plant’s 3.6m tonnes of capacity was well timed given tight global gas markets due to sanctions and restrictions on Russia, the world‘s fourth largest LNG producer, which has sent Asian spot price soaring in recent months.
Shell owns 67.5 per cent of Prelude alongside Japan‘s Inpex with 17.5 per cent, South Korea’s Kogas at 10 per cent and Taiwan’s CPC with 5 per cent.
Prelude was touted by Shell as the first of a revolutionary line of projects to unlock gas resources previously considered too remote to support development of conventional land-based LNG plants.
However, high costs and technical problems on Prelude have slowed momentum to sanction additional floating projects.
The floating LNG vessel started delivering supplies from the Prelude gas field in June 2019. However, the plant was yet to get anywhere near its full capacity when it hit a series of safety incidents early in 2020, which were probed by Nopsema.
It then suffered the electrical fault which caused the vessel to shut down in December.
Shell is one of the dominant players in Australia’s booming energy sector, operating the QCLNG export plant in Queensland, the Prelude floating LNG project off northern Australia along with stakes in Western Australia’s North West Shelf, Gorgon and Browse LNG ventures and gas business Arrow.
While Shell’s earnings are dominated by oil and gas currently, it wants to gradually shift the weight of its investment dollars to lower-carbon sources to reflect its prediction the energy system will rely much more on electricity rather than fossil fuels for its generation.