How will Australia's LNG strikes impact business energy costs?

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    How will Australia LNG strikes impact business gas prices?

    Mark Gamble is Utility Bidder’s Head of Operations. He has more than a decade of experience in the commercial energy sector, building relationships with suppliers, and gathering and sharing the latest market intelligence to help our customers make the best choices.

    August was volatile for the natural gas market – no understatements there. After a relatively calm first week of the month, market conditions started to get rocky. On 9 August, UK wholesale natural gas prices surged by almost 30% – hitting just over 101p per British thermal unit (BTU).

    We can see from the graph below (from Trading Economics), that a trend of fluctuation followed, with prices reaching 106p per BTU on 22 August before dropping off. However, on 6 September, prices began to surge again. At the time of writing (11 September), the price is almost 92p per BT

    Gas prices

    So, what’s caused these fluctuations, why are UK natural gas prices 35% higher today than they were at the start of August, and should UK businesses be concerned?

    Strike action begins at two major Australian LNG facilities

    Throughout August, the looming threat of strike action at three Australian liquified natural gas (LNG) plants caused prices to fluctuate globally.

    Strike action was averted at the country’s biggest LNG facility, operated by Woodside Energy Group in North West Shelf. Unions for the workers endorsed an in-principle agreement to resolve the dispute on 24 August.

    However, workers at Chevron’s Gorgon LNG plant and Wheatstone downstream facility voted to strike over pay and working conditions, with action starting on 8 September.

    A spokesperson for Chevron stated: “Unfortunately, following numerous meetings and conciliation sessions before the Fair Work Commission, we remain apart on key terms,”

    Why do Australian LNG strikes matter to the European gas markets?

    Russia’s invasion of Ukraine and the sanctions that followed have led to an increased reliance on alternative gas supplies. The UK banned imports of Russian gas, although fairly small, at the start of this calendar year, while countries in the European Union have moved to reduce their dependence on Russia as an energy source.

    One of the alternative sources is Australia – with Chevron’s Gorgon and Wheatstone facilities producing more than 5% of global LNG exports. So, strike action will put stress on the supply. It will leave Europe competing with Asia, a continent widely regarded as the LNG ‘destination of choice’. And, naturally, this will drive natural gas prices upwards.

    Could the UK see business gas prices increase this autumn/winter as a result?

    The good news is that the UK is in a solid position as far as gas storage inventory goes – we’re currently at 89% capacity. Only three of our 11 gas storage facilities are used for LNG too, with much of our supply being piped.

    However, a complete halt to or reduction in production levels at the Australian plants would have a knock-on effect to the demand for LNG alternatives (like piped gas). Competition would increase, causing prices to rise as a result. In such a scenario, it’s likely consumers would see domestic and business gas prices increase.

    There are other factors that could also present challenges to the UK energy markets this autumn/winter.

    Wind, for example, is a large component of renewable electricity generation. If we see continued spells of high cloud and low wind across the UK and Europe, it’ll cause renewable energy generation to drop, which will mean a higher reliance on burning gas to generate electricity. In the UK, 35% of our electricity was generated by gas in August.

    National Grid ESO, Britain’s Electricity Explained

    Source: National Grid ESO, Britain’s Electricity Explained: August 2023

    France’s nuclear production capacity could present problems too. The country exports a lot of electricity generated through its nuclear fleet. Last year, maintenance issues resulted in several reactors having to be offline https://www.utilitybidder.co.uk/energy-bill-discount-scheme/, which reduced the country’s output and caused a large supply pinch.

    What can customers do to protect themselves against business energy price rises?

    Thankfully, the wholesale cost of gas would need to rise several times over its current position for the Energy Bills Discount Scheme (EBDS) to come into effect.

    However, there are a couple of things all organisations can consider doing to protect themselves against the prospect of paying more for business energy . One is by looking at ways to reduce energy demand. It’s a straightforward and effective way to keep costs down.

    If your business is in or approaching its switching window, it’s also crucial to ensure your energy broker is armed with all the correct information. Ultimately, it’s this that will help them to make an informed choice as to when to strike your next contract – such an important factor for keeping costs to a minimum.

    Need more information on the next steps to take during your switching window? Our expert consultants are available to provide you with all the relevant facts and figures to help you make the most informed decision. Get in touch today.

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