Australia Delays Shell BG Takeover Decision, by Marex

Shell & BG 1

By MarEx 2015-09-16 20:20:47

Australia’s competition watchdog flagged concerns on Thursday that Royal Dutch Shell’s proposed $70 billion takeover of BG Group may lessen gas supply competition in eastern Australia and delayed a final decision on the bid to November.

The Australian Competition and Consumer Commission (ACCC) said a large number of market participants had expressed concerns that the proposed takeover may lead Shell’s Arrow Energy to sell its gas into BG’s Queensland Curtis liquefied natural gas plant (QCLNG) for export.

Queensland Curtis LNG is one of Australia’s largest capital infrastructure projects, involving US$20.4 billion of investment from 2010-14.

“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,” ACCC Chairman Rod Sims said in a statement.

The commission said it now planned to issue a final decision on November 12.

In response to the regulator’s concern about gas sales by Arrow Energy, which is 50-50 owned by Shell and PetroChina, Shell said BG already had enough gas to meet all its commitments.

“Arrow and QCLNG collaboration could assist the development of Arrow’s undeveloped resources to potentially accelerate additional gas supplies into both the domestic and export market,” Shell said in an emailed statement.

The takeover has already been cleared by U.S. and Brazilian anti-trust authorities. It still needs approvals from Australia’s Foreign Investment Review Board and China to go ahead.

Shell said it remained confident the deal would be completed in early 2016.

Some of Australia’s biggest manufacturers fear Shell’s takeover of BG could worsen what they see as a lack of competition in the country’s eastern gas market, spurred by three new LNG export plants, including BG’s, in Queensland.

“This burst in demand for gas over a very short timeframe for the LNG industry is effectively upending the east coast gas market,” Sims said in a speech at a gas conference on Thursday, outlining the commission’s preliminary impressions on a review of the east coast gas market due in April 2016.

He said the commission had evidence that after the LNG projects were approved, many Australian industrial gas users went from a market where they received three to five offers of supply on negotiable terms, to a market where they received no offers or only one true offer on inflexible terms.