The Prelude floating liquefied natural gas (LNG) export facility offshore Western Australia has canceled cargo deliveries through mid-July as labor unions representing workers on the vessel initiate work stoppages.
Shell plc told multiple news outlets this week that it has notified customers of the cancellations, citing the impacts of a strike that started on June 10. Meanwhile, the Offshore Alliance, a partnership between the Australian Workers’ Union and the Maritime Union of Australia, said Shell announced its intention “to shut down production during the midst of bargaining” last week.
The Prelude facility produces 3.6 million metric tons/year (mmty) of LNG. The lack of cargoes from the vessel in the coming weeks stretches a global market already short on supplies. An explosion earlier this month that knocked out the 15 mmty Freeport LNG terminal in Texas until later this year has also taken cargoes off the market.
Flows on Russia’s Nord Stream 1, one of the largest systems serving Europe, have also been reduced due to what Gazprom PJSC has said are technical issues. The system is scheduled to be taken offline for maintenance July 11-20, stoking concerns that Europe might not get the supply back beyond the end date as political tensions mount amid Russia’s war in Ukraine.
Shell and the unions are sparring over a new collective bargaining agreement. The company claims the strike is limiting its ability to operate Prelude and load cargoes. The vessel came back online in April after it was forced to shut down following a fire last December.
The facility mostly supplies cargoes to Northeast Asia, mainly South Korea, Japan and Taiwan, according to Rystad Energy.
Asian LNG prices are still trading below those in Europe given a scramble on the continent to refill storage inventories ahead of winter and consistent concerns about the reliability of Russian supplies. Prices in Asia are lower despite a heat wave that has impacted parts of Northeast Asia, including some of the hottest weather in a century in Tokyo.
“Given that most Northeast Asian buyers still have sufficiently healthy inventories, while there are increasing concerns about warm weather, it is not enough to force their hand in the market,” said Rystad analyst Lu Ming Pang. However, he added that the Prelude outage could cause a “noticeable disruption” if it does stretch into July.
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