Macro Intelligence: Chevron faces challenges amid Western Australia LNG strikes

In this week’s edition of Macro Intelligence, we examine the outlook for liquefied natural gas (LNG) amidst recent worker strikes in Western Australia.

Chevron's battle for LNG exports amid strikes

US energy behemoth Chevron has been striving to maintain LNG exports despite workers' strikes affecting two of its pivotal projects in Western Australia. This month, unions initiated a ban on tanker loadings at Chevron’s Wheatstone and Gorgon LNG plants. Additionally, a technical fault exacerbated production issues at the Wheatstone project.

However, as of earlier this week, Chevron announced that the plant was back online. These two Western Australian plants collectively contribute to approximately 5% of the global LNG supply, and the ongoing strike action intensifies uncertainty surrounding global reserves.

LNG one year chart

Chevron's struggle to quell worker strikes

Workers have been partially downing tools since September 8, with threats to escalate stoppages after talks aimed at resolving disputes over pay and conditions faltered. The Australian Offshore Alliance described Chevron’s bargaining attempts as 'the most inept effort of any employer the union has dealt with in the past five years.'

For its part, Chevron has requested Australia's industrial tribunal, the Fair Work Commission, to intervene in an attempt to halt the strikes.

Fueling the world: Chevron's LNG challenges and Australia's resilience

LNG is burned to generate electricity, heat, and cooking fuel in homes and businesses, as well as processed for plastics and other petrochemical products. With Chevron’s Australian operations accounting for over 5% of the global supply, strike action is adding to concerns about reserves, particularly as we approach the northern hemisphere winter.

However, Reuters reported that shipping data on LSEG Eikon and Kpler showed Wheatstone has been continuing some of its LNG exports despite the technical faults and strikes. Australia stands as a top global exporter of LNG.

Top LNG exporters for 2022 chart

Insights from analysts and the rocky road ahead

Kaushal Ramesh of Rysted Energy in Singapore told Ausbiz that volatility will persist until a resolution is reached, and the strike action serves as a reminder that the gas market is trading on an unstable equilibrium. However, analysts suggest that, compared to last year, major markets have ample storage capacity, with European reserves at around 92% capacity. Additionally, there are extra reserves in Japan and South Korea.

BloombergNEF predicts that competition between Northwest Europe and North Asia for liquefied natural gas (LNG) will be lower this winter, in contrast to last year's concerns of a supply shortage. Despite a growing appetite for LNG in mainland China, it's unlikely to result in increased spot purchases due to high contract levels.

Nevertheless, analysts anticipate that global LNG demand will experience a 2% year-on-year growth in the summer of 2024, with emerging markets in Southeast Asia and South Asia serving as the primary drivers of this growth.

Bloomberg forecast year-on-year in global LNG chart