Shell/BG merger raises local gas availability concerns: ACCC

The ACCC’s chairman has raised concerns about Royal Dutch Shell’s $70 billion takeover of BG Group worsening east coast gas availability and prices.

Following preliminary investigations, Rod Sims said an acquisition could change Shell’s incentives to export rather than supply local users.

"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, said Sims.

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

The ABC reports that Shell owns 50 per cent of Arrow Group, and BG the majority of the Queensland Curtis LNG project.

"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," Reuters reports him as saying.

Manufacturing Australia said the comments by Sims, who will release a final decision on the merger on November 12, vindicated their concerns on the effect of local supply.

A separate review (due April next year) had been told industrial users had gone from a market with three to five offers of supply on negotiable terms to a situation with no or one offer, with non-negotiable terms.

“Gas supply insecurity, market dysfunction and price spikes are a severe threat to domestic manufacturing. The ACCC is clearly asking the hard questions to get to the bottom of what we have long regarded as a highly dysfunctional gas market in Australia,” said Ben Eade, executive director of Manufacturing Australia, in a statement.

“Just a handful of economic interests now control the vast majority of Australia's current gas reserves, while regulatory barriers, infrastructure constraints and the lack of transparent markets and trading hubs prevent new gas supply, and new suppliers, from entering the market.”

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