Australia’s gas industry is in crisis, with unions saying there will be two weeks of 24-hour strikes starting tomorrow.
The action is occurring at two of Australia’s biggest liquefied natural gas (LNG) plants: Chevron (NYSE:CVX) Corporation’s Gorgon and Wheatstone projects, which are responsible for about 7% of the world’s LNG supplies.
Talks on Friday to avert a strike failed, which caused European gas prices to rise by 13%. A further consequence was the immediate withdrawal of around 500 Offshore Alliance workers at the Wheatstone and Gorgon onshore plants in Western Australia.
Chevron’s removal of workers from projects threatens Australia’s $92 billion export industry, adding to inflation concerns.
While an initial strike at Wheatstone only lasted an hour, we could be looking at stoppages for 10 hours a day as unions continue their battle with Chevron over pay, job security, rosters, transfers to other Chevron work sites, training standards and travel arrangements among other pain points.
Arbitration required
Chevron has lodged an application with the Fair Work Commission, seeking arbitration as labour strikes compromise approximately 7% of the world's LNG supplies.
The move follows a surge in European gas prices, which climbed 6% on Monday after the aforementioned 13% hike on Friday.
Chevron maintains that the strikes have not impacted production. The oil giant has previously applied for intractable bargaining declarations for its Gorgon and Wheatstone facilities, citing an impasse in negotiations.
If the Fair Work Commission approves the application, it will rule on union remuneration requests, potentially ending strikes that analysts claim would significantly affect global LNG supplies.
A Chevron Australia spokesperson stated the company resorted to this step due to "unreasonable demands" from unions, following unsuccessful meetings and conciliation sessions.
“Throughout the process to date, we’ve made generous, good-faith offers and concessions in an effort to finalise enterprise agreements. Unfortunately, following numerous meetings and conciliation sessions with the Fair Work Commission, no agreement has been reached as the unions are asking for terms significantly above the market,” the spokesperson said.
“Given we consider there is no reasonable prospect of agreement, we will now apply for Intractable Bargaining Declarations for Gorgon and Wheatstone Downstream.”
Offshore Alliance is a coalition of two unions and is “bunkering down for a long dispute”. The Alliance stated the US oil and gas giant should prepare for “losing billions of export revenue”.
Despite the commission's involvement, ongoing strikes will continue until a ruling is rendered. Offshore Alliance, a union coalition, warns Chevron to brace for a protracted dispute, putting billions of export revenue at stake.
Rick Wilkinson, CEO of EnergyQuest, emphasised the gravity of the situation, stating that the strikes risked a third of Australia's LNG exports and almost half of Western Australia's domestic gas supply.
“The Chevron industrial negotiations are not for the faint-hearted. They put at risk a third of Australia’s LNG exports and almost half of Western Australia’s domestic gas supply. The daily revenue at risk to Chevron and its partners – an estimated $76 million per day – means a quick solution is a priority,” Wilkinson said.
Buyers in Japan and domestically would be hardest hit.
“Japan, as Australia’s largest buyer of LNG, now has 16% of its national LNG supply caught up in one industrial dispute in Western Australia.”
Meanwhile, buyers in Europe fear heightened competition from Asia will again push up prices ahead of winter.
At a local level, WA uses significant quantities of gas for electricity production. The WA state government now has a keen eye on events as they unfold.
Legal experts note that the intractable bargaining declarations, enacted by the Albanese Government in June 2023, remain untested.