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ACCC under pressure as gas buyers push Shell gas concerns

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by Angela Macdonald-Smith: Nov 12 2015

In a country touting itself as “open for business”, the national competition regulator looms as a major hurdle in what could be the world’s biggest energy merger this decade, Royal Dutch Shell’s $US70 billion ($99 billion) swallowing of BG Group.

Despite Shell’s global chief Ben van Beurden claiming “massive support” from federal and state politicians for the merger, Australian competition tsar Rod Sims will first have a say, with the twice-deferred ruling from the Australian Competition and Consumer Commission due on November 19.

Worries voiced by Incitec Pivot and other manufacturers that the union would further shrink increasingly scarce and costly gas supplies for east coast buyers have been heard by the ACCC, which laid out its “amber light” concerns in September. Since then, both sides have been pressing their cases hard with Sims.

Arguably, the key question is whether the combination of Shell’s Arrow gas venture in Queensland and BG’s Queensland Curtis venture would make the development of Arrow’s resources more or less likely, rather than whether the gas goes into LNG or the domestic market, given the pool is one and the same.

But it’s a tricky debate, given the hypotheticals involved: Arrow’s resources are, after all, mostly still stuck firmly in the ground. Shell argues the use of existing infrastructure resulting from a takeover is the best way to address the cost issue, and says only an LNG-scale market could warrant the investment.

But most gas buyers take a different view, arguing an Arrow-QCLNG combination would only put it beyond doubt that the last remaining major chunk of undeveloped gas in Queensland will go for export rather than local use. 


As the ACCC notes, the already hefty 68 per cent of eastern Australia’s reserves that are already held by the Queensland LNG companies would swell to 86 per cent if Arrow reserves become aligned to QCLNG.

The respective partners involved in the ventures – PetroChina in Arrow and China National Offshore Oil Corporation (CNOOC) in Queensland Curtis – add another layer of complexity, given their voices will also count in the outcome for the gas. Where they stand on the merger isn’t clear.

The Shell camp may also argue that the ACCC’s job is to assess the impact of the takeover on competition as the market stands, rather than examine ownership of gas resources that will influence future supply. Going down that track confuses the examination of the merger with the watchdog’s ongoing inquiry into the east coast gas market, where final results are only due in May.

Still, the ACCC’s reservations are clear, and while Shell insists there is no competition issue, it would seem up to the oil major to try to address the concerns. While the oil giant is clearly hoping for an unconditional approval, industrial gas buyers would be shocked not to see some restraints imposed.

The two potential solutions proposed by  Manufacturing Australia have their own issues, however.

The first, which MA chairman Mark Chellew describes as “sharing the love outside the tent” – would see Shell required to sell out of Arrow, or out of certain tenements to a player not currently involved in the close supply-customer relationships in eastern Australia.


But the fully incorporated joint venture structure of Arrow would seem to rule out the sale of individual permits, while any divestment could not dictate whether the gas would be developed, or where it would end up.

One source suggests that in an ideal world, a Queensland government-owned and -funded corporation could step in to hold and develop the gas for the domestic market.

The second proposal put by MA would involve an open gas tender administered by the ACCC or another body to allow domestic buyers to access it, although Shell argues that sales to domestic users would fail to support a commercial project.

Other suggestions such as tougher application of use-it-or-lose-it rules would seem to encroach on the remit of government, and in any case would be more applicable in an oversupplied market where  gas was being banked rather than a short market where the economics of development is the problem.

All sides seem agreed, at least, that gas reservation is not the answer, given the goal is moving more gas – not less – into the market. 

The risk is that any solution the ACCC comes up with will be a compromise to let the deal go through and won’t fix the underlying problem.

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