A strike is announced in Australia, and natural gas prices are rising sharply in Europe. Experts expect that the short-term effect will remain.

The working conditions are bad, the salaries are too low: unions in Australia are putting pressure on the operators of large natural gas liquefaction plants in western Australia – they are threatening both the energy company Chevron and the Woodside Energy Group with a strike.

“Woodside has tried every tactic to avoid collective bargaining,” said the spokesman for the Offshore Alliance, which represents workers on the platforms. “But ultimately the company failed to maintain the status quo – the one in which it alone sets the tone.” A strike is only the last resort, but Woodside leaves no choice. In response, the company only refers to ongoing negotiations.

However, there is not much time for this, as the unions want to stop work at the beginning of September if there is no agreement. This would not only have consequences for companies – but also for global trade in liquid gas, LNG for short. The platforms at issue in the dispute account for a good ten percent of global LNG exports.

Few long-term contracts in Europe

A foretaste of how the market might react was seen in market price jumps earlier in the month, following the first reports of possible strikes. LNG prices skyrocketed by up to 40 percent in the short term.

Europe is particularly affected by such price increases, explains Georg Zachmann from the Brussels think tank Bruegel. Because: Australia mainly serves long-term contracts with customers in Asia with its LNG. If companies cannot fulfill their contracts with their own natural gas, they have to get it elsewhere: on the spot market, i.e. where trading takes place at very short notice. Europe buys large parts of its liquefied gas there. “Europe only wants a lot of liquid gas temporarily, after all, it should quickly move in the direction of renewables,” explains Zachmann. As a result, European utilities would have few long-term contracts. “But that also means that we take every bump in the LNG market with us.”

A drought in South America triggered another such bump last year. Because hydropower provided less electricity, the demand for LNG rose rapidly. Similar to what is now the case with the Australian gas platforms, the prices for LNG also soared back then.

LNG share doubled, emissions increased sharply

New liquefaction terminals currently under construction in the US could soon calm the market, says Zachmann. However, it is difficult to predict how the situation will develop.

Including pipeline gas, Europe’s natural gas imports are declining overall. The proportion of LNG that is delivered by ship has doubled in the past two years. Likewise, the CO2 emissions alone from the ships that bring the additional LNG to Europe have doubled. Despite the large increase in demand, experts warn that in a shock reaction to the gas price crisis, Europe has significantly oversized its import capacities.

What happens next depends to a large extent on political decisions: will Austria continue to import such large quantities of Russian gas? It currently buys about 80 percent in Russia – about the same as before the attack on Ukraine. And: How quickly will the expansion of renewables and the exit from fossil fuels succeed? The answers help decide how LNG demand develops in Europe – as do the prices for households. “In the short term, most households will only feel the price increases, such as those triggered by the dispute in Australia, with a delay and to a lesser extent,” says Zachmann. He does not expect any profound upheavals.