200 gas workers: How Australian trade unions confused the global gas market

Australian gas workers working on LNG projects for Woodside and Chevron companies continue to disrupt the energy market of Europe. Last week, threats to halt production, made by industry unions, caused significant concern at one of the world's most liquid gas hubs – TTF in the Netherlands: futures jumped 40% in a single day.

The state of calm that characterised the gas market over the past months turned out to be an illusion.

This week, European prices remain unstable and are holding at their highest level since March 2022, as union negotiations for wage increases with the owners of LNG enterprises on Tuesday, 15th August, did not contribute to dispute resolution.

Mind has investigated what is really happening in the modern gas market and what its prospects are to return to an extreme state when European and Asian gas prices rose to over $1000 per 1000 cubic metres.

Panic sentiments

The recent sharp rise in gas futures is not substantiated by a physical shortage of natural gas in the market and merely reflects traders' anxious sentiments. In turn, this indicates a lack of rational calculation in their behaviour.

"Gas is becoming more expensive due to people who are completely unfamiliar with the labour landscape of Australia or the involved parties. In reality, the risk of the global market losing 10% of the world's LNG production due to strikes in Australia is highly unlikely," noted Saul Kavonic from the analytical division of UBS in his review.

Fragile balance

The precedent set by the Australian unions has underscored the importance of the Australian LNG supply for global energy security. The mere prospect of halting this production caused a price surge in Europe.

This also exposed the vulnerability of the global gas market following the decrease in russian supplies that began last year due to the kremlin's aggression against Ukraine and its Western allies.

Although most Australian LNG is sold to Japan, South Korea, and China, the gas market is so interconnected that a fuel shortage in Asia will inevitably impact the situation in Europe, as both regions compete for the same limited amount of spot cargo.

The market is also under pressure due to the approaching new heating season, which begins in less than two months.

Uncertain Australia

The nervous reaction of the global gas market to the news from Australia indicates how traders trust this country as a supplier of LNG. Over the past six months, the Labour government, led by Prime Minister Anthony Albanese, has sought to restrain gas prices and implement export controls.

In this context, Andrew McKellar, the CEO of the Australian Chamber of Commerce and Industry (ACCI), criticised the gas workers' unions.

"Holding Australia's reputation and economy to ransom is beyond the pale," he said.

Jennifer Westacott, the CEO of the Business Council of Australia (BCA), also stated that Australia cannot afford to delay the implementation of crucial infrastructure projects due to strikes.

Strike and price

"We continue to engage actively and constructively in the bargaining process. Positive progress is being made, and the parties have reached an in-principle agreement on a number of issues that are key to the workforce," Woodside company stated in their announcement today, without specifying a date for the next meeting with the unions.

Likely, during the negotiations, which could last for weeks, the conflicting parties will test each other's patience. However, they are unlikely to allow the worst-case scenario where a prolonged, large-scale strike halts half of Australia's gas production.

"Indeed, the unions are very good at knowing their leverage points. In the free market the gas industry advocates for, workers too have the ability to negotiate their price and push their advantage at a time when wages try to keep up with inflation. But what is most remarkable is how a few hundred Aussie FIFO workers in high-vis workwear have managed to jolt the world's gas markets. The unions have now created a further risk premium on gas prices. This alone may deliver enough additional revenue to the LNG companies to cover the union demands," notedThe Australian.

Corporate mathematics

According to analysts from the research company Macquarie, the energy giant Woodside has a significant incentive to reach a new agreement with the unions, as the value of a single export batch of LNG could offset the additional costs associated with negotiating a new labour contract with 200 workers.

Macquarie has calculated that Woodside would need to pay an additional $110,000 per employee over five years, totalling up to $50 million annually. On the other hand, a single batch of LNG produced by the Australian energy giant on the northwestern shelf of the Indian Ocean could cost anywhere from $40 million to $120 million on the market, depending on spot gas prices.