Australia raises concerns over Shell's AU$97 billion takeover of BG Group, fears rise in gas prices and crunch in domestic supply

Australia's competition watchdog has raised concerns over Royal Dutch Shell's proposed US$70 billion (AU$97.34 billion) takeover of BG Group on the grounds that it will lead to short supply of gas within the country and hamper competition in the market.

If successful, the acquisition would make Shell the world's biggest liquefied natural gas trader. However, the deal awaits the green light from Australian and Chinese regulators. It is expecting completion in early 2016, according to the Anglo-Dutch company.

The Australian Competition and Consumer Commission is expected to announce its final decision by November 12 after a detailed study. Already, the commission has taken a view of the concerns expressed by a large number of market participants over the takeover. The prime concern is that it might lead Shell's Arrow Energy to sell its gas to BG's Queensland Curtis liquefied natural gas plant for serving export markets and create a crunch in the domestic market, the Telegraph reported.

“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.

Shell’s assurance

Responding to the regulator's concern about gas sales by Arrow Energy, Shell said BG has enough gas to meet 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. Arrow is 50-50 owned by Shell and PetroChina.

The takeover has been cleared by EU, U.S. and Brazilian anti-trust authorities. The remaining approvals have to come from Australia's Foreign Investment Review Board and China before going ahead with the deal.

Local concerns

Many Australian manufacturers fear Shell's takeover of BG would worsen competition in the eastern gas market and jack up gas prices as the number of export plants in the region would become three, including BG's plant in Queensland.

The ACCC will wait till November to complete its study of the various submissions from businesses. It needs to be convinced that Shell would not curb local supply and its focus will not be in the lucrative exports to Asia through BG’s LNG terminal on the east coast, the Wall Street Journal reported.

The regulator will also review a separate study on Australia’s east-coast gas market, which Sims described as “one of the few in the world under the shadow of supply uncertainty despite a production boom.”

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