Strikes at Chevron LNG plants spark global gas worries

Strike action at two of Australia’s biggest LNG plants has put the global gas market on edge as Chevron pulled workers off projects, threatening the nation’s $92bn export industry.

Strike action at two of Australia’s biggest LNG plants has put the global gas market on edge as Chevron pulled workers off projects, threatening the nation’s $92bn export industry.

European gas prices jumped 13 per cent on Friday as industrial action began at Chevron’s Gorgon and Wheatstone projects, which are responsible for about 7 per cent of the world’s LNG supplies, amid heightened concern about the prospect of another energy crisis that could drive further inflation.

Talks to avert a strike ended in failure last Friday, and almost immediately some 500 workers from the Offshore Alliance stopped work for three hours at the Wheatstone and Gorgon onshore plants in Western Australia.

A strike on the Wheatstone platform lasted an hour.

Strikes will be extended to average approximately 10 hours a day next week. By September 14, unions said there will be two weeks of 24-hour strikes.

Unions and Chevron have ­failed to reach agreement on a range of issues including pay, job security, rosters, transfers to other Chevron work sites, training standards and travel arrangements.

Chevron is seeking to follow the lead of Woodside Energy, which struck a deal at its North West Shelf platforms, averting industrial action, after a 15-hour bargaining session.

But with animosity growing on both sides, the unions and Chevron are struggling to find common ground. Unions rejoiced at Chevron evacuating some 50 employees from the Gorgon Project on Saturday. “Chevron chartered a special flight this morning to Barrow Island to evacuate 50 blue and white-collar contract crew off the Gorgon Project,” Offshore Alliance said in a Facebook post.

Sources familiar with the incident said contractor staff were demobilised as activities at the site had waned.

“We will continue to take steps to maintain safe and reliable operations in the event of disruption at our facilities,” a spokesman for Chevron Australia said. Disruptions to supplies at Chevron’s WA facilities will be acutely felt by Asian buyers, with Japan and Chinese companies major buyers. Protracted disruptions will tempt them to seek alternative supplies, but global supplies remain extremely tight.

European gas prices jumped 13 per cent on Friday as industrial action began at Chevron’s Gorgon (pictured) and Wheatstone projects.

European buyers fear they will face heightened competition as winter approaches, a critical period for the region, which relies on the fossil fuel for electricity ­generation.

Energy analyst Saul Kavonic said Chevron and the unions were both posturing. “We are now entering the next stage of the bargaining process, where there will be a lot of tactical positioning under way, with legal demands flying back and forth testing the legal and political limits of the industrial action,” said Mr Kavonic.

“Chevron has some non-union workers trying to mitigate the strike impact, but the level of union penetration probably means this can only go so far. The need to keep domestic supply maintained may limit the strikes’ scope to materially impact LNG production for the time being. The biggest risk will build over the next few weeks as some bans start to bite, for example as tanks fill.”

Prices of TTF, the European benchmark, rose 13 per cent to €34.50 ($57.71) per megawatt hour on Friday night in response to the strikes, according to LSEG data.

In its latest quarterly report, EnergyQuest noted that Chevron and Woodside shipped 56 LNG cargoes (3.9 million tonnes) in July, producing total revenue of $4.1bn or $132m a day.

“This is $91,800 a minute – so even a 30 minute stoppage is painful, although the cargo is more likely deferred, and not lost,” EnergyQuest said. “The 76-day strike last year at Prelude was reported to have cost Shell $1.5bn.

“One day of revenue is $240,000 per worker. This is the difficult position that any gas operator can find themselves in when the revenue stream far exceeds the cost of settling the ­action.”

Domestic shortfalls will be extremely concerning for WA, which uses significant quantities in electricity production.

Chevron’s two facilities are responsible for about half of Western Australia’s domestic gas supply.

WA has in recent months endured a chaotic period with a spate of coal power station outages and an uptick in demand.

With coal playing a smaller role in electricity generation, the Australian Energy Market Operator said this week a total of 100 petajoules of gas was consumed in the WA domestic gas market in the second quarter of 2023, a drastic increase from the previous three months when just 7.6PJ was consumed.

The increasing reliance on gas came, however, at a cost. AEMO said average wholesale electricity prices in WA during the three months ended June 30 hit a record high. This increase does not immediately flow to customers, but most likely will next year.

The WA government will be desperate to avoid upward pressure on household and business bills. A spokesman for the Energy Minister said officials were watching the situation closely.

“At this stage we expect that any impact on the domestic gas market will be manageable. However, the state has a number of levers it can use to ensure stability of the system in the event of a shortfall,” the spokesman said.

“The state government expects Chevron to meet its domestic gas obligations. We continue to urge the parties to work constructively together to find a solution to the industrial dispute.”

Originally published as Strikes at Chevron LNG plants spark global gas worries