European natural gas prices experienced a sharp decline on Thursday as the possibility of a strike at a significant liquefied natural gas (LNG) plant in Australia diminished. This development alleviated concerns among traders that a production halt could lead to tight global supplies. The price of TTF futures fell by 11% to €32.50 per megawatt hour ($10.2 per million British thermal units), marking a decrease of more than one-quarter in just two days. The worries over potential disruptions to global supplies, which had been impacting the gas market for a month, subsided as unions and management in Australia reached a tentative agreement to resolve their dispute.
Traders had been worried about potential strikes at three LNG facilities in Australia, which collectively account for approximately 10% of global LNG supplies. Woodside Energy, whose North West Shelf (NWS) facilities make up around 4% of global LNG supplies, reached an “in-principle agreement” on various issues with the Offshore Alliance union, significantly reducing the likelihood of strike action. The risk of supply disruptions in Australia, a major producer and exporter of LNG to Asian countries, had sent European gas prices soaring. However, LNG from Australia is not commonly delivered directly to European shores. If Asian buyers need alternative sources of Australian LNG, they will be competing with Europe, which has increasingly relied on LNG due to decreased gas exports from Russia following the Ukrainian conflict.
Traders consider the recent sell-off as a “correction in a market that has overreacted.” It highlights Europe’s overdependence on super-chilled fuel and its vulnerability to price spikes and increased volatility. Market participants, for now, are confident that LNG supply will not face any disruptions and expect factors such as the abundance of gas in the EU’s storage facilities to keep prices suppressed. The progress made by Woodside in its agreement with the unions strengthens its position in final talks with Chevron, as workers at the Chevron-operated Wheatstone and Gorgon LNG ventures voted in favor of industrial action if necessary. Analysts suggest that it will be harder for Chevron to resist union demands now that Inpex, Shell, and Woodside have accepted them.