Watchdog anxious about higher gas prices

Royal Dutch Shell’s £47 billion ($101 billion) proposed takeover of oil and gas giant BG Group has hit a road bump as Australia’s consumer watchdog raises concerns that booming liquefied natural gas exports may restrict competition in the local market.

The ACCC has invited further submissions on the merger and postponed its final decision to November 12.

“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”, he added.

The Australian Competition and Consumer Commission is concerned that Shell may prioritise supply to BG’s LNG facilities in Queensland over competing gas users and direct more of Arrow Energy’s large gas reserves towards meeting BG’s contracts to supply LNG export markets.

There are only a limited number of potential gas suppliers to the domestic Australian market, and Arrow’s reserves are not aligned with an LNG project, the ACCC said. Browse Splash 24/7 for more maritime and shipping news.

The regulator released a statement of issues on the deal on Thursday and has called for more submissions from the market by a new October 8 deadline, before a final ruling is made the following month.

Shell responded to the concerns by saying in a statement that BG group already has enough gas to meet all its commitments. The ACCC has been examining the proposal since June 11.

“The ACCC’s preliminary view is that the proposed acquisition will align Shell’s Arrow interests with BG’s interest in QCLNG, which may see Shell prioritize supply to LNG”, Sims said.

Following anti-trust clearance from the United States and Brazil, Shell received go-ahead form the European commission early September, while approval from China’s competition authority is still outstanding.

“Ultimately, with Arrow having effectively been on the back burner for a while now, the BG deal could actually accelerate development and therefore be positive from Australia’s perspective”, said the Canadian bank.

Separate to the Shell-BG merger review, the ACCC is also undertaking a broader inquiry of the competitiveness and structure of the east Australian 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 a industry speech on Thursday.

The deal is being studied as part of a wider review of the gas market on the east coast.