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ACCC warns Shell's BG takeover may increase Australian gas prices



The Australian Competition and Consumer Commission has flagged concerns about the impact a global power play in the energy market will have on east coast gas prices.

The ACCC said, after preliminary investigations, the proposed takeover of the British giant BG by Royal Dutch Shell could damage the interests of east coast and Queensland gas users and force up prices.

Both Shell - through its 50 per cent stake in Arrow Energy - and BG - which holds a majority stake in the $20 billion Queensland Curtis Liquefied Natural Gas project (QCLNG) - are dominant players in the emerging coal seam gas industry.

Arrow's resources in the Surat and Bowen Basins constitute the largest uncontracted gas reserves in eastern Australia, and are currently not aligned with an LNG project.

Apart from the QCLNG project, BG also holds interests in natural gas tenements and production facilities in the Surat Basin in Queensland, and exploration rights in the Bowen and Cooper Basins.

"The ACCC is concerned that, by aligning Shell's interest in Arrow Energy with BG's LNG facilities in Queensland, the proposed acquisition may change Shell's incentives such that it will prioritise supply to BG's LNG facilities over competing gas users," outlined the ACCC's chairman Rod Sims in a statement.

"As a result, Shell could choose to direct more - and possibly all - of Arrow's large gas reserves towards meeting BG's contracts to supply LNG export markets.

"This would remove some or all of Arrow's gas from the domestic market.

"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."

Manufacturers argue more gas suppliers needed

Manufacturers have welcomed the review, arguing more rather than fewer gas suppliers were needed in the domestic marketplace.

"If the merger does go ahead, then the ACCC should seriously consider whether enforceable undertakings should be included to ensure the Arrow gas reserves in Queensland find their way to the domestic market and are not withheld from the market," Manufacturing Australia chairman Mark Chellew said.

Mr Chellew said the changes in Australia's gas market were having widespread impacts throughout the country's economy.

"The unfortunate fact is, the gas industry based their project planning for LNG plants on the assumption they would be awash with gas, which they are not, and that oil would remain [between $90 and $100] per barrel, despite the long-term average being around half that figure," he said.

"The whole of Australia may now end up paying the price for these flawed assumptions."

Shell and BG - formerly known as British Gas - agreed to the $US70 mega-merger of their global assets in April this year.

The ACCC began its review into the impact of the merger on Australian consumers in June and has now deferred a final decision until November 12, while inviting more submissions to its inquiry.

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.

The 12 month review is scheduled to be finalised in April 2016.

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