Europe Gas Slumps as Rising Stockpiles Blunt LNG Strike Fears

(Bloomberg) -- European natural gas slumped as traders weighed ever-rising stockpiles on the continent against the possibility of worker strikes in Australia that could disrupt global supplies. 

Benchmark futures fell as much as 8.1%, erasing an earlier gain. The contract surged 28% in the previous session, the most since March 2022, during the earliest days of Russia’s war in Ukraine.

The correction Thursday is the latest example of extreme volatility that has stalked Europe’s gas market for months. Inventories are now about 88% full on average — well above normal for the time of year — and industrial demand remains tepid after last year’s energy crisis. 

Still, any sign of supply disruption can lead to price spikes, which could be even more pronounced when demand increases in winter. Trader positioning has also contributed to price swings recently.

“The strength and extent of the move may have been driven by an unwinding of short positions, and the market has fallen back to some extent today as the dust settles,” said Callum Macpherson, head of commodities at Investec. There was a similar move that drove prices higher in recent months, he added.

Potential strikes at three major LNG facilities in Australia could disrupt about 10% of global exports of the fuel. If industrial action goes ahead, it could make Asian buyers seek alternative supplies from outside the region, intensifying competition with Europe for the fuel. 

“Any such strike could disrupt about half of Australia’s LNG export capacity and cause many Asian buyers to look elsewhere for their cargoes,” Zongqiang Luo, senior analyst at Rystad Energy, said in a note. 

The market is closely watching ongoing talks between labor unions and Chevron Corp. and Woodside Energy Group Ltd. Strikes could begin as soon as next week under labor rules. 

Gas Inventories

Traders are monitoring gas stockpiles in Asia, where the picture appears to be mixed. Total LNG inventories in Japan may have fallen below last year’s level due to more robust power demand, according to Rystad. In China, LNG tank stockpiles at import terminals may hit 90% in the coming month, which could force importers to push back seaborne shipment deliveries.

European LNG imports have already slipped from highs seen earlier this year, and competition for supply would increase when heating demand starts. Europe relies on the fuel to fill gaps left by the loss of Russian pipeline gas, but that’s unlikely to be sufficient before 2025, according to Bloomberg Intelligence analyst Patricio Alvarez. 

Dutch front-month futures, Europe’s gas benchmark, slipped  to € a megawatt-hour at 11:11 a.m. in Amsterdam. The UK equivalent dropped 4%, also erasing an earlier gain. 

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