Strikes begin at Chevron's Gorgon, Wheatstone LNG units; supply impact in focus

Industrial action at Chevron's Gorgon and Wheatstone LNG facilities was to start Sept. 8 after the company failed to reach an agreement with the unions, a Chevron Australia spokesperson said, a move unlikely to have immediate supply disruptions.

"We confirm conciliation sessions with the Fair Work Commission ended today [Sept. 8] without agreement," the spokesperson told S&P Global Commodity Insights on Sept. 8.

Offshore Alliance, or OA, said separately its members at Chevron's Wheatstone Platform, and Gorgon and Wheatstone Downstream gas processing facilities in Northwest Australia will begin protected industrial action from 1 pm Australian Western Standard Time (0500 GMT) Sept. 8.

OA members will engage in 20 types of protected industrial action, or PIA, and from Sept. 14, members will stop work completely for two weeks as part of the PIA.

Potential supply impact

LNG market participants are now focused on whether escalating industrial action from Sept. 14 will impact supplies from the facilities that feed buyers in Japan, China, South Korea and Taiwan.

The Platts JKM, the benchmark price reflecting spot LNG delivered to North Asia, was assessed 5% higher on Sept. 8 at $13.34/MMBtu. Platts is part of S&P Global Commodity Insights.

European gas prices also opened 8% higher on Sept. 8 following the news of strike, with the TTF month-ahead contract starting the trading day at Eur35.50/MWh, according to ICE data.

It reached an intraday high of Eur36.80/MWh at 1100 GMT though prices were also impacted by extended maintenance work at a number of key Norwegian gas assets.

Platts assessed the TTF month-ahead price at Eur32.93/MWh on Sept. 7.

A number of LNG buyers in Asia said they expect to see limited supply impact in the first few weeks, but a bigger knock could be felt should strikes last longer.

"Strike situation would affect the Japanese buyers the most, but they seem to be holding up," said a Chinese LNG importer.

"There will be limited impact of the strikes in the short term as inventory is high in Asia, longer term impact could be there if the strikes continue for prolonged period."

A Japanese LNG buyer of the affected Australian projects said it has yet to receive any information from Chevron.

Mixed views

Analysts concurred on limited near-term LNG supply impact, but held mixed views when it comes to availability situation once OA members stop work completely for two weeks from Sept. 14.

The impact of the strikes in the first two weeks should be limited, but the walkout planned for Sept. 14 could cause supply disruptions and is likely pressuring Chevron to come to an agreement before the situation escalates, Logan Reese, an associate director on the Asia-Pacific Regionally Integrated team at S&P Global, said Sept. 8.

Chevron will ensure the domestic market is supplied while continuing to prioritize contracted volumes, which could place some spot cargoes at risk following a potential walkout, Reese said.

According to Saul Kavonic, an Australia-based energy analyst: "The initial strikes set to begin today appear low level, designed to create costs and inefficiencies for Chevron, but not yet impact production materially. This is part of the unions ratcheting up the pressure on Chevron to make more compromises, and is all part of the negotiation 'dance' between the parties."

A full shutdown of the facilities simply cannot occur, as long as it would cause an energy crisis in Western Australia that would see the government intervention, he added.

Industrial action

Chevron said it tried to reach an agreement that was in the best interests of both employees and the company, but "following numerous meetings and conciliation sessions before the Fair Work Commission, we remain apart on key terms."

"The unions continue to seek terms that are above and beyond equivalent terms with others in the industry, including in agreements recently reached," the spokesperson added.

Even before the strikes began in Australia -- one of the world's top three LNG exporters -- considerable volatility was seen in the global gas market, particularly in Europe, where the region's increased reliance on LNG imports following the loss of Russian pipeline gas has market participants wary of any potential supply disruptions.

"We will continue to take steps to maintain safe and reliable operations in the event of disruption at our facilities," Chevron's spokesperson said.

'Being unreasonable'

In a separate statement, Offshore Alliance spokesperson Brad Gandy said Chevron has been unreasonable.

"Chevron are being unreasonable and downright unusual in their behavior. Offshore Alliance members call on them to change tack so this dispute can be settled and the company can get on with the business of making billions of dollars exporting Australian gas," Gandy said.

The Chevron-operated Gorgon and Wheatstone projects are among Australia's largest resource developments. The Gorgon project comprises a three-train, 15.6 million mt/year LNG facility and a domestic gas plant, while the Wheatstone project has a nameplate capacity of 8.9 million mt/year of LNG and a domestic gas plant.

Japanese buyers were the foundational customers for the Gorgon and Wheatstone projects, with Japanese LNG lifting volumes accounting for 30% of the Gorgon output and 83% of Wheatstone output, according to S&P Global calculations based on industry information.

Gorgon and Wheatstone LNG together exported around 24.6 million mt of LNG in 2021 and 27.5 million mt in 2022. They have exported around 17.4 million mt of LNG so far this year, according to S&P Global data.

In 2022, around 46% of Gorgon and Wheatstone's LNG exports were sent to Japan, followed by 15% each to China and South Korea and around 14.4% to Taiwan. The remainder went to Singapore, Thailand and India.

So far this year, Japan has accounted for 46.6% of total LNG exports from the Gorgon and Wheatstone projects, followed by China at 15%, Taiwan at 13%, South Korea around 9%, Thailand 8%, Singapore 5.3% and the remainder to other Asian countries.