Weekly News Review - 18th September 2023

Gas prices jump as strikes in Australia begin

Wholesale gas prices in the UK rose by 10% following the start of strike action at two Australian LNG facilities last Friday. Workers at Chevron facilities in Australia voted last month to approve industrial action at the Wheatstone and Gorgon operations. Talks with unions have so far failed to avert the strikes over pay and conditions, although they were delayed by a week.

Industrial action at the two facilities could disrupt about 5% of global LNG exports and deliver a new energy price shock across Asia and Europe. However, both sites have so far continued to export LNG and preliminary data has shown that exports for Wheatstone and Gorgon are estimated to be 27% and 30% lower in September than in August, respectively.

Chevron no longer expects to reach a deal with unions and will instead pursue an untested legal strategy to stop industrial action. Chevron said on Monday it sees “no reasonable prospect of agreement” and will apply to Australia’s industrial umpire, the Fair Work Commission, for an “intractable bargaining” declaration, which, if granted, would end strikes and allow the umpire to dictate an agreement.

A Chevron spokesperson said in a statement: “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.”

Australia is the largest LNG producer in the world, exporting 80.9 million metric tonnes last year. This represents around 20% of the global LNG market, with strike action affecting around a quarter of this production. More than 60% of Australia’s LNG exports are sent to China and Japan with Europe receiving very little. However, a drop in Australian production would lead to more competition for global LNG exports which has raised European prices.

Following the start of the strike, the wholesale gas price in the UK rose from 79.48p/th to 84.86p/th. Prices have risen higher still this week and reached 92.30p/th on Wednesday. Analysts at Engie EnergyScan said: “Prices are up this morning… but in a rather moderate way. We have not yet reached the stage of a drop in supply. So, no need to panic in a context where all other fundamentals are rather bearish.”

Tata Steel given £500m by UK government to produce green steel

The UK Government has agreed a proposal with Tata Steel to invest in greener steelmaking at Port Talbot, protecting the future of steel production and skilled jobs in Wales. The government will provide a £500m grant which, together with a £750m investment from Tata Steel, will be used to develop a new Electric Arc Furnace for greener steel production at the site in south Wales.

Port Talbot’s steelworks is the largest in the UK but is also one of the country’s largest polluters. The new Electric Arc Furnace would replace the existing coal-powered blast furnaces – which are nearing the end of their effective life – and reduce the UK’s entire carbon emissions by around 1.5 percent as a result. However, the company has warned there will be a “transition period including potential deep restructuring” which could result in up to 3,000 job losses.

Business Secretary Kemi Badenoch said: “The UK Government is backing our steel sector, and this proposal will secure a sustainable future for Welsh steel and is expected to save thousands of jobs in the long term. This is an historic package of support from the UK Government and will not only protect skilled jobs in Wales but also grow the UK economy, boost growth and help ensure a successful UK steel industry.”

Chancellor Jeremy Hunt added: “This proposal is a landmark moment for maintaining ongoing UK steel production – supporting sustainable economic growth, cutting emissions, and creating green jobs. It is right that we are ready to step in to protect this world class manufacturing industry and to support a green growth hub in South Wales.”

Tata Group Chairman Natarajan Chandrasekaran said: “The agreement with the UK Government is a defining moment for the future of the Steel Industry and indeed the industrial value chain in the UK. The proposed investment will preserve significant employment and presents a great opportunity for the development of a green technology-based industrial ecosystem in South Wales.”

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