Prospective strike action by workers at Australia's second-largest liquefied natural gas (LNG) plant is being closely watched by European policymakers, concerned that a second winter of soaring energy prices could cause inflation to rebound.

European natural gas futures spiked 40% last week in reaction to the threatened walkout, at one stage reaching €43 ($46.75) per megawatt-hour (MWh). On Friday, the futures price remained elevated at €36.90.

Workers at Western Australia's Gorgon plant and the Wheatstone downstream facility, both majority-owned by Chevron Corp, have begun voting on whether to take industrial action in their dispute over pay and job security.

Separate talks between Australian energy firm Woodside Energy Group Ltd. and workers at another facility, North West Shelf, will also continue next week to try to avert a possible walkout.

Australia is 2nd largest LNG exporter

"These facilities represent 10% of global LNG exports," Ana Maria Jaller-Makarewicz, Europe energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told DW. She added that until the disputes are resolved, European gas prices could remain volatile.

European economies are still recovering from last year's energy crisis, sparked by Russia's invasion of Ukraine. As part of Western sanctions on Moscow, European Union nations raced to reduce their dependence on Russian energy and secure alternative supplies. The decision sent natural gas prices skyrocketing.

While European gas prices remain substantially lower than last summer when gas futures hit record highs of €340 per MWh, they remain well above levels seen in previous years. Gas prices could reach €50 by winter, which would lead to much higher bills for businesses and consumers.

EU nations are keen to avoid a freezing winter like the one narrowly avoided last year after Russia crippled gas supplies to Europe and the final authorization for the Nord Stream 2 gas pipeline linking Russia and Germany was shelved.

"We were lucky with a mild winter last year, but this time, the market is pricing in a possible worst-case scenario," Thierry Bros, an energy expert and professor at Paris' Sciences Po university, told DW.

EU gas storage nearly full

Europe is, however, better prepared this time. On Thursday, the EU's gas storage facilities reached 90.12% capacity, the equivalent of more than 93 billion cubic meters (BCM) of natural gas. The target was achieved three months ahead of schedule. However, this amount only covers up to a third of the bloc's winter gas demand.

"Even with storage almost full, it's the minimum amount required for a safe winter," Bros warned. "Europe will still need additional gas flows, and we will definitely need more LNG than last year."

As gas prices soared last year, European nations had to outbid South Asian countries for LNG supplies from the United States, Norway and Qatar. The likes of India, Pakistan and Bangladesh, in turn, were forced to rely more heavily on coal and faced more power blackouts due to shortages.

Asia's thirst for Australian LNG

While Europe gets very little of its LNG from Australia, large Asian powers Japan, China and South Korea heavily rely on imports from down under.

"If Australian LNG supplies are missing this year, you can bet that China will fight against Europe for US or Qatari gas supplies, especially as China has very few gas storage facilities," said Bros.

"When there is a shortage, there will always be a mad scramble for the last available supplies, and that's where we could see insane prices."

Mild winter, renewables could save Europe

Europe's increasing switch to renewable energy could be a saving grace this winter, Jaller-Makarewic told DW, noting how the EU's gas consumption declined 12% year-on-year in July while LNG imports were also lower.

"If this trend continues, the impact of any strikes could be much lower," she said, adding that Europe could reduce its susceptibility to high gas prices by further reducing consumption.

A second mild winter across much of Europe could be another positive. The Gas Exporting Countries Forum, a grouping of the world's leading gas-exporting countries, believes the last quarter of the year could be relatively warm, meaning a reduced need for gas for heating.

But Europe remains reliant on Russia for around 15% of its gas needs, although that figure is down from 40%. Bros said the Kremlin could further weaponize energy to restrict gas supplies to Europe while the Australian LNG strikes take hold.

Citigroup warned last week that if the Australian strikes go ahead and are long-lasting, European gas prices could double by January. The US bank estimated that the price could hit €62 per MWh.

Similar strike action by Australian staff on Shell's Prelude gas ship last year continued for 76 days.

Edited by: Ashutosh Pandey