Shell Restarts LNG Shipments from Prelude FLNG After Prolonged Strike 

Nearly a month after reporting that it had reached a new union agreement for its Prelude FLNG operation, Shell today made the first shipment from the facility since July. The unit, which started operations in 2019, is one of the largest in the world with an annual capacity of approximately 3.6 million tonnes, although frequent problems have kept production below peak levels.

"The enterprise agreement has now been supported by a majority of employees in a formal vote and is expected to come into effect in early October 2022," a Shell spokesperson told Reuters. Shell said it is focused on moving forward and looking to build stable production from the facility located off the west coast of Australia.

Shell found itself locked in a bitter dispute with the union over wages and working conditions. What began with wildcats strikes and one-hour stoppages in June grew more entrenched with the union vowing to outlast Shell. In mid-July, the union moved to block LNG carrier arrivals to the FLNG effectively shutting down the facility. Shell officially said on July 25 that it was suspending operations. 

The tentative union agreement was announced a month later on August 23. The union had previously said it would continue the strike into September.

The agreement between the Offshore Alliance, which represented two striking unions, and Shell was mediated by Australia’s Fair Work Commission, which had also approved the labor action against Shell. They officially removed the work ban at the end of August clearing the way for the facility to restart. However, Australia's National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) is reportedly continuing to monitor the facility and review safety plans. After a fire at the facility in December 2021, the regulators required upgrades with the unit not gaining approval for full production until March 2022. 

Analysts calculate that the suspension had a dramatic impact on Australia’s gas production and exports. Argus reports that July exports dropped to a three-month low of just over 6.5 million tonnes, down from over 7 million tonnes in July 2021. While the Prelude FLNG has rarely lived up to its expected output it remains a major contributor with expectations that Shell aims to improve its output.

Gas remains in short supply and in high demand in Australia. It has been recently forecast that Australia’s east coast could face as much as a 10 percent shortfall in supply in 2023 which has led to calls for curbs on Australia’s LNG exports. Shell Australia last week announced a new deal to supplement the east coast’s gas supply with a one-year agreement starting in 2025 with New Zealand Oil and Gas with gas from the company’s Mereenie joint venture in Australia’s Northern Territory to be supplied to the east coast.