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Aug 16th , 2023

Last year, the ongoing energy crisis plaguing Europe garnered widespread attention. Since the beginning of this year, European natural gas futures prices have remained relatively stable.

However, in recent days, there has been a sudden surge. An unforeseen potential strike in Australia, which has not yet occurred, unexpectedly triggered repercussions in the distant European natural gas market, thousands of miles away.

All Because of Strikes?

In recent days, the price trend of the European benchmark TTF natural gas futures for the near-month contract has shown significant fluctuations. The futures price, which started at nearly 30 euros per megawatt-hour, temporarily surged to over 43 euros per megawatt-hour during trading, reaching its highest point since mid-June.

The final settlement price stood at 39.7 euros, marking a substantial 28% increase in the day’s closing price. The sharp price volatility is primarily attributed to plans for strikes by workers at some vital liquefied natural gas facilities in Australia.

According to a report from the “Australian Financial Review,” 99% of the 180 production staff members on Woodside Energy’s liquefied natural gas platform in Australia are in support of the strike action. Employees are required to provide a 7-day notice before initiating a strike. As a result, the liquefied natural gas plant might shut down as early as next week.

Furthermore, Chevron’s employees at the local liquefied natural gas plant are also threatening to go on strike. All of these factors could impede the export of liquefied natural gas from Australia. In reality, Australian liquefied natural gas rarely flows directly to Europe; it primarily serves as a supplier to Asia.

However, analysis suggests that if the supply from Australia diminishes, Asian buyers might increase their purchases of liquefied natural gas from the United States and Qatar, among other sources, thereby intensifying competition with Europe. On the 10th, European natural gas prices experienced a slight decline, and traders continue to assess the impact of bearish and bullish factors.

EU Boosts Ukrainian Natural Gas Reserves

In EU, preparations for this year’s winter have begun early. Gas consumption during the winter is typically twice that of summer, and the EU’s natural gas reserves are currently nearing 90% of their capacity.

The EU’s natural gas storage facilities can only store up to 100 billion cubic meters, while the EU’s annual demand ranges from about 350 billion cubic meters to 500 billion cubic meters. The EU has identified an opportunity to establish a strategic natural gas reserve in Ukraine. It is reported that Ukraine’s facilities could provide the EU with an additional storage capacity of 10 billion cubic meters.

Data also shows that in July, the booked capacity of natural gas pipelines delivering gas from the EU to Ukraine reached its highest level in nearly three years, and it is expected to double this month. With the EU increasing its natural gas reserves, industry insiders suggest that this winter might be significantly safer compared to the previous year.

However, they also caution that European natural gas prices could continue to fluctuate over the next one to two years. CitiGroup predicts that if the Australian strike event begins promptly and extends into the winter, it could result in European natural gas prices doubling to around 62 euros per megawatt-hour in January next year.

Will China Be Affected?

If there’s a problem in Australia that impacts European natural gas prices, could it also affect our country? While Australia is the largest LNG supplier in the Asia-Pacific region, China’s domestic natural gas prices have been running smoothly.

According to data from the National Bureau of Statistics, as of July 31st, the market price of liquefied natural gas (LNG) in China was 3,924.6 yuan per ton, a decrease of 45.25% from the peak at the end of last year.

The State Council Information Office previously stated in a regular policy briefing that in the first half of the year, China’s natural gas production and imports have both maintained stable growth, effectively ensuring the needs of both households and industries.

According to dispatch statistics, the apparent natural gas consumption in China for the first half of the year was 194.9 billion cubic meters, a year-on-year increase of 6.7%. Since the onset of summer, the highest daily gas consumption for power generation exceeded 250 million cubic meters, providing strong support for peak electricity generation.

The “China Natural Gas Development Report (2023)” published by the National Energy Administration indicates that the overall development of China’s natural gas market is stable. From January to June, the national natural gas consumption was 194.1 billion cubic meters, a year-on-year increase of 5.6%, while natural gas production reached 115.5 billion cubic meters, a year-on-year increase of 5.4%.

Domestically, influenced by economic conditions and the trends in domestic and international natural gas prices, demand is expected to continue to rebound. It is preliminarily estimated that China’s national natural gas consumption for 2023 will be between 385 billion cubic meters and 390 billion cubic meters, with a year-on-year growth rate of 5.5% to 7%. This growth will primarily be driven by urban gas consumption and gas usage for power generation.

In conclusion, it appears that this event will have limited impact on China’s natural gas prices.