European gas surges above €40 as Australia adds to LNG risks

European natural gas jumped above €40 for the first time since June amid the possibility of worker strikes at some plants in Australia.

Benchmark futures soared as much as 32 per cent, the most since September 2022, building on gains in the previous two sessions and highlighting market nervousness over supplies. Oil and coal also advanced.

Workers at Chevron and Woodside Energy Group facilities in Australia voted to strike, which has the potential to affect liquefied natural gas (LNG) exports from the country, tightening the global market for the fuel. The exact timing of the industrial action – if it goes ahead – wasn’t immediately clear.

Asian buyers “are likely to bid up LNG imports” to replace Australian volumes if there are disruptions, which would affect Europe as well, said Nick Campbell, a director at consultant Inspired. “LNG has become a baseload supply in the European gas supply mix, therefore any signs that this flow is at risk leads to support in price.”

Other bullish drivers have added support to prices recently. They include a drop in LNG imports to Europe last month and increased flows to Ukraine, which has spare storage capacity. Potential delays in Norway’s seasonal maintenance also pose a risk. For now at least, these factors are outweighing tepid demand and unusually high stockpiles in Europe.

It’s also possible that this week’s price surge caused a wave of position-covering by investors who previously bet on further declines in gas. Similar moves caused an extreme volatility in June.

Investment funds’ net-short positions in benchmark Dutch gas futures increased last week – after falling to the lowest level since January a week before, according to data released on Wednesday by market operator Intercontinental Exchange.

The vote by Woodside workers in Australia increases the risk of industrial action, which could disrupt LNG operations at its North West Shelf project, said Jake Horslen, a senior LNG analyst at Energy Aspects in London. Japanese clients would be most affected by any strikes in Australia.

“Asian buyers would need to pull more strongly on Atlantic LNG to balance any shortfalls in the event of a strike, which would tighten supply fundamentals in Europe and the Atlantic,” Mr Horslen said. “This creates upside risk for TTF,” the European benchmark price.

Dutch front-month futures, Europe’s gas benchmark, traded 31 per cent higher at €40.77 a megawatt-hour by 3:09pm in Amsterdam. The UK equivalent added 31 per cent.

Winter gas contracts also gained, albeit at a lower pace, as German utility EON warned of more risks during the upcoming heating season. “The crisis is not over,” though the likelihood of a repeat of last year has diminished, chief executive Leonhard Birnbaum said in an interview with Bloomberg Television. – Bloomberg