Labour unions hit back at Australia LNG heavyweights

Australia’s LNG sector is still under fire after several years of climate change litigation against its largest gas players amid concerns over project GHG emissions. While some cases have been resolved and several others make their way through the courts, the industry faces even more headwinds – this time coming from labour unions and work stoppages.

U.S.-based energy giant Chevron’s Australian subsidiary is the most recent company caught in the crosshairs. Workers are set to resume a strike at Chevron’s Gorgon and Wheatstone LNG facilities in Western Australia by Thursday, October 19.

The Gorgon project includes a three-train, 15.6 million ton per annum (mtpa) LNG facility and a domestic gas plant, while the Wheatstone project has a nameplate capacity of 8.9 mtpa of LNG and a domestic gas plant. The move could disrupt around 7 percent of global LNG supply represented from the two projects.

The decision to resume strikes comes just three weeks after the Offshore Alliance (OA) reached a deal with Chevron over new employee agreements. The OA represents two trade unions — the Australian Workers’ Union (AWU) and the Maritime Union of Australia. Australia’s Fair Work Commission (FWC), the country’s workplace relations tribunal, mediated the talks.

Australia is one of the world’s largest LNG exporters, along with Qatar and the U.S. Its supplies helped put downward pressure on global energy prices after Russia began cutting its pipeline gas to Europe in retaliation against EU and western sanctions for its invasion and ongoing war in Ukraine.

The fresh labour fallout in Australia comes amid allegations that Chevron isn’t living up to terms it agreed upon in the September agreement. The OA said that the energy giant had reneged on adopting the FWC’s recommendations as agreed upon in earlier negotiations, marking a “contemptuous slight to its workforce, the union and the industrial umpire.”

Chevron alleges that the disagreements constitute only a “small number of issues,” including reimbursement for travel and meals and it is committed to reaching a deal based on FWC recommendations. It added that it’s asked the FWC to help resolve the handful of sticking points, including how travel and meal expenses are reimbursed and cabin sharing on the offshore platform.

Union demands

“The unions have been trying to get the enterprise agreement (EA) for workers – and we believe that’s the demand and motivation here,” Min Na, Head of Asia LNG at Energy Aspects, told Gas Outlook.

“We’ve also been saying that there’s sufficient economic incentive for Chevron to find a resolution given cargo replacement costs, opportunity costs and potential reputational damage,” she added.

An EA is negotiated between employers, employees and bargaining representatives to establish a fair working wage and conditions of employment. The employer has no obligation to enter into negotiations for an EA with employees or a union.

However, if an employer refuses to bargain formally, then it’s up to the employees (usually through their union) whether they back away or seek orders from the FWC for a formal ballot to be conducted of support for the bargaining process among employees.

Putting even more pressure on Chevron, the OA wields considerable power in the country. It secured an EA for workers at the 9 mtpa INPEX-operated Ichthys project in April 2022 and for Shell’s 3.6 mtpa Prelude FLNG workers in October 2022. It also secured the EA for Woodside’s 16.3 mtpa Northwest Shelf project in late August.

A Financial Review report said that Woodside workers locked in AUD$300,000-plus wages from the agreement. The AWU justified the pay. “Working offshore is dangerous, difficult, and requires long weeks away from friends and family. These workers deserve pay and conditions that reflect their hard work – and the billions of dollars in profit they generate for large energy companies,” it said.

Labour costs have been an issue in Australia’s energy sector for years. High labour and construction costs in addition to labour demands made the country’s rampant LNG build-out last decade the most expensive in the world. An Australian government report at the time found that labour costs at new Australian LNG projects were at least 35 percent higher than projects in the U.S.

Minimal market implications

Na said that she expects a resolution will be reached between the unions and Chevron either under FWC mediation or a decision on the intractable bargaining decision (IBD) Chevron applied for.

If Chevron and the OA can’t reach a deal by October 19, however, the renewed strike will impact global LNG markets, especially in Europe. However, much of that impact could be driven more by market psychology than pure supply and demand fundamentals.

Notably, when union workers decided to strike at Chevron’s LNG facilities a month ago it increased spot market price volatility in the European market, but price contagion was minimal.

The front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for gas trading, spiked to around 10% higher at €36 (US$38) per megawatt hour. Prices, however, stabilized for the next several weeks before closing the month in the high-30s to low-40s range. This time last year, TTF prices were trading well north of the €100 (US$105.58) price point.

Most of Australia’s LNG production is already inked under long term off-take agreements in Asia, particularly to Japan. As such, it seldom has excess volumes to offer on the spot market.

Moreover, an S&P Global report said that Gorgon and Wheatstone LNG sellers told at least one Japanese buyer that their LNG supply will not be affected by looming strikes from October 19.

Na, for her part, doesn’t expect the ongoing dispute to have any material impact on Australian LNG exports. “Chevron was able to maintain normal LNG loading operations during full strike action over September 14 to 22 with a contingency workforce, and we expect the firm to similarly cope with any future strikes if they arise next week,” she said.