Workers strikes at Chevron’s LNG facilities in Australia have increased spot gas price volatility in the European market, although we expect the impact to be temporary, Fitch Rating says.

Chevron’s Gorgon and Wheatstone facilities in Australia represent about 7% of global LNG supply and sell predominantly to Asian markets. However, if supply from Australia is reduced, Asian buyers could turn to other LNG suppliers, competing with Europe, for the duration of strikes. This is spurring temporary spot price volatility in the European gas market. Workers at Chevron’s Australian LNG facilities started a partial strike that could evolve into a full two-week strike from September 14 if the parties do not reach an agreement.

The strikes come during a period of lower demand in Europe, while high levels of utilisation of European gas storage should help cushion the longer-term impact of the strikes on European gas prices. A reduction in European gas demand, which helps maintain market balance in the region, has been sustained in 1H23 (demand declined by 11% yoy and by 21% compared to 1H21) and we expect reduced consumption to continue in 2H23. European gas storage is 93% full, which is well above seasonal average levels. The EU has reached its internal target of filling 90% of storage 2.5 months ahead of its target of 1 November.

Furthermore, Ukraine has made available its storage facilities for gas intended for Europe. Ukraine expects to store 3.5 billion cubic metres (bcm) by winter for European traders. This adds about 4% to the EU’s gas storage (or about 1% of overall gas demand in Europe), which adds to the margin of safety.

LNG remains the main replacement of Russian pipeline supplies to Europe with the EU still adding import capacity. The EU imported close to 64bcm of LNG in 1H23 (up from 59bcm in 1H22), accounting for 36% of demand (compared to 29% in 1H22). The EU imported 83bcm of LNG in 8M23, up from 80bcm in 8M22. According to Gas Infrastructure Europe’s LNG Database, the EU will add 59bcm of import capacity in 2023 and 2024.

We assumed the average 2023 TTF price of USD12/mcf in our latest price deck. Our mid-cycle price assumption remains at USD5/mcf.
Source: Fitch Ratings