Major Strike! Raw Material Prices Surge by 11%!

Introduction:

Last Friday, September 8th, as negotiations over working conditions and wages broke down, workers at Chevron's Gorgon and Wheatstone liquefied natural gas (LNG) projects in Australia initiated a strike that lasted for several hours. This strike resulted in a significant spike in European natural gas prices, with futures contracts soaring by 11%!

Australia, known as the largest global exporter of natural gas with a 20.15% market share in 2022, witnessed this strike impacting 7% of the global LNG supply from the affected Chevron projects. If the negotiations fail to reach a consensus, Chevron plans to halt operations completely for two weeks starting from September 14th, which is expected to cause a decline in LNG production by 1.1 million metric tons.

Effect on Global Natural Gas Prices:
As the labor dispute in Australia's major LNG facilities remains unresolved, reduced natural gas shipments have led to a surge in natural gas prices in Europe and the United States. The natural gas prices at the Henry Hub in the United States rose by 2.6%, while the European benchmark prices increased by 7.2%. Furthermore, the European benchmark TTF (Title Transfer Facility) gas futures skyrocketed by nearly 9%.

Global Natural Gas Trends:
Throughout this year, global natural gas prices have been at a high level. In mid-August, US natural gas prices were twice as high as the previous year, reaching a record level of the past decade. In Asia, prices have increased sixfold compared to the previous year, while in Europe, they have surged tenfold. Considering that China's dependence on imported natural gas is approximately 40%, the strike-induced price surge has led to a 14.60% increase in domestic LNG benchmark prices, and a 23% increase over the past month alone. Consequently, the rise in costs has impacted domestic gas supplies and raw material production.

Broader Impact and Outlook:
The transportation challenges and labor strike in the natural gas sector, coupled with OPEC+ production cuts in the oil sector, have gradually expanded the scope of the energy crisis. As upstream incidents continue to occur, driving up raw material prices, market forces, policies, and manufacturers are all actively promoting the upward trend in raw material costs. With the approach of the autumn and winter seasons and the uncertainty surrounding the recovery of Australian natural gas production, there is a significant opportunity for further substantial price increases in natural gas. Consequently, the entire industry chain is expected to continue its upward trajectory. However, considering that the recovery of end-user demand is not on par with previous years, it is crucial for businesses to devise prudent procurement plans and avoid blind stockpiling.

Conclusion:
The labor strike in Australia's LNG projects has triggered a significant surge in natural gas prices, impacting global markets and industries dependent on natural gas. With the unresolved situation and the potential for further price increases, stakeholders need to navigate the challenging landscape with careful planning and informed decision-making to mitigate the impact on their operations.