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European natural gas prices fell sharply on Thursday as the prospect of a strike at a key liquefied natural gas plant in Australia faded, easing traders’ fears that a halt in production would squeeze global supplies.
The price of TTF futures was down 11 per cent at €32.50 per megawatt hour ($10.2 per million British thermal units), having earlier fallen as much as 18 per cent, after unions and management in Australia reached a tentative agreement on a dispute that had threatened to develop into a strike in the coming weeks.
The fall leaves the European benchmark, which lost 15 per cent on Wednesday, down by more than one-quarter in two days as worries over possible disruption to global supplies, which has hung over the gas market for a month, subsided.
Traders had fretted over the risks from strikes at three LNG facilities in Australia, which collectively account for around 10 per cent of global LNG supplies. Trade unions had pushed for better terms around pay, rostering, job security and safety conditions at platforms run by Woodside Energy.
Overnight Woodside, whose North West Shelf (NWS) facilities account for around 4 per cent of global LNG supplies, said it had reached an “in-principle agreement on a number of issues’‘ with the Offshore Alliance union, significantly reducing the potential for strike action by its offshore gas workers.
The risk of supply disruptions in Australia, one of the world’s biggest producers of LNG and a major exporter to Asian countries, sent European gas prices surging this month. TTF’s closing price on Tuesday was the highest since April.
LNG from Australia rarely makes it directly to European shores. However, if Asian buyers of Australian LNG need to look for alternative sources then they will be competing with Europe, which has come to rely on LNG after Russia slashed its pipeline gas exports to the region following its invasion of Ukraine.
The competition will become more pronounced heading towards the winter, when demand for the super-chilled fuel increases, and potentially push up inflation and living costs.
Traders labelled the sell-off of recent days a “correction in a market that has overreacted”.
“The recent market movement shows how over reliant Europe is on the super chilled fuel and susceptible to price spikes and enhanced volatility,” said Wayne Bryan, director of European gas research at Refinitiv.
He added that, for now, markets are “satisfied LNG supply will not be disrupted” and that factors that suppress prices, like the abundance of gas in the EU’s storage facilities “should prevail”. EU gas storage hit 91.6 per cent of capacity on Tuesday.
Woodside said there had been “substantial progress” with the unions during a marathon session held on Wednesday that ran late into the evening. Workers at the NWS will vote on whether to accept the agreement later on Thursday.
“The Offshore Alliance was instructed by members to secure an industry standard enterprise agreement that met key outcomes. It’s up to the members to determine if the deal brokered this morning meets that. The Alliance is confident that this is the case,” said Brad Gandy, a spokesman for the alliance.
The Woodside agreement further strengthens its position heading into final talks with Chevron, according to analysts.
Workers at the Chevron-operated Wheatstone and Gorgon LNG ventures, the two other plants threatened with supply disruption, on Thursday voted overwhelmingly to take industrial action if needed.
Saul Kavonic, head of integrated energy and resources at Credit Suisse in Australia, said union penetration at Chevron was higher than at Woodside so it has more leverage during talks with the US company.
Kavonic also said that it would be more difficult for Chevron to hold out on terms now a number of its rivals have made agreements with the union. “It is harder for Chevron to push back on union claims when Inpex, Shell and now Woodside have all accepted them,” he said.