Australian watchdog delays Shell-BG merger

Royal Dutch Shell’s $70 billion acquisition of BG Group has suffered a setback due to Australia’s competition watchdog delaying its final decision on the bid until November. 

Namely, the Australian Competition and Consumer Commission (ACCC) has released a Statement of Issues on the proposed acquisition by Shell of BG Group seeking industry views and more information on the competition issues that have arisen in the ACCC’s review to date.

To remind, Shell cleared its first antitrust hurdle in June by receiving early termination of the US antitrust waiting period from the United States Federal Trade Commission. Furthermore, Shell received merger clearance from the Brazilian competition authority (CADE) in July and the European Commission gave its clearance in September.

ACCC Chairman Rod Sims said: “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.” 

Sims added: “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.”

“Currently, Arrow has the largest quantity of uncommitted gas reserves in eastern Australia and there are a limited number of other potential suppliers to 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.”

Competition effects

According to its statement, the ACCC has received a large number of submissions from market participants concerned about the competition effects of the proposed acquisition.

The ACCC has invited further submissions from the market in response to the Statement of Issues by October 8, 2015. As a result, the ACCC’s final decision will be deferred until November 12, 2015.

Shell is a global group of energy and petrochemicals companies. Shell currently has a 50% interest in Arrow Energy. Arrow is a Queensland coal seam gas company that produces gas in the Surat and Bowen Basins. Arrow’s gas reserves constitute the largest uncontracted gas reserves in eastern Australia, and are currently not aligned with an LNG project.

BG is an international explorer and producer of oil and gas, and supplier of LNG. In Australia, BG holds a majority stake in the Queensland Curtis Liquefied Natural Gas project (QCLNG)—an LNG project in Gladstone, Queensland. It 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.

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