Shell’s $US70 billion mega-merger with the UK’s BG Group faces new competition concerns after the ACCC surprised by hinting that it may be blocked or changes requested of the parties to win approval.
News of the move by the commission came out of the blue as Australia was considered to be one of the countries where competition concerns would not be a great concern – China and Brazil were seen as more contentious areas.
The Commission has now released a statement of issues, outlining its concerns about the merger. In the document the ACCC warned the energy deal could boost prices and cut the supply of natural gas to consumers on the east coast of Australia.
The Commission currently has an extensive inquiry underway into the East Coast gas market which started before the Shell bid arrived at BG and from comments yesterday by ACCC chair, Rod Sims, that inquiry has already found issues impacting to the Shell BG deal.
The proposed takeover seems to have raised worries among industrial energy users along the east coast that the availability and choice of gas supplies will be further restricted.
The Commission said it holds concerns over the deal and is seeking further submissions from the market before a final decision is made on November 12. New submissions will have to be filed with the ACCC by August 8.
“Shell has the largest quantity of uncommitted gas reserves in eastern Australia and there are a limited number of other potential suppliers to the domestic market,” the ACCC said in a statement. That gas is in Queensland in the Arrow joint venture.
"If the proposed acquisition resulted in less supply of gas to the domestic market, therefore, this could substantially lessen competition to supply domestic gas users and lead to higher domestic prices and more restrictive contractual terms."
Prices for local consumers are already increasing sharply, partly because so much gas is set to be shipped from Queensland to Asia as LNG (which is part of the reason for the Commission’s pre-existing inquiry).
The Commission believes the surge in potential export demand has combined with delays in the development of NSW coal seam gas resources to drive up gas prices well beyond historical levels.
UK-based BG owns the $24 billion Queensland Curtis LNG project, which started exports early this year, while Shell owns 50% of the Arrow Energy venture, the holder of the largest chunk of known, undeveloped gas reserves on the east coast.
BG group wrote down the value of its Queensland gas assets in January by more than $A9 billion, the biggest write down by a resource company in Australia so far this year.
The European Commission gave the green light to the deal early this month, but approvals from Australia and Chinese authorities remain pending.
The ACCC’s east coast gas inquiry is due to report by April next year.
In a speech yesterday, Commission chairman Rod Sims said development of the $100 billion-plus LNG industry in Queensland had permanently “up-ended” the local gas industry.
“There was originally a strong presumption that CSG with some incremental supply from the Cooper Basin would largely supply LNG demand," Mr Sims said in the speech.
"However, despite this early expectation of a gas production boom, the east coast market seems to be perhaps one of the few gas markets in the world which is now living under the shadow of supply uncertainty."
