Shell’s $70billion deal to buy BG Group has been queried by Australia’s competition regulator who has delayed approval after fears it could reduce the supply of natural gas to local customers and raise prices.
The Australian competition regulator has invited further submissions on the Shell deal and now plans to make a final decision in November 12.
The transaction may decrease the incentive for Shell’s Arrow Energy venture with PetroChina Co. to feed gas to the domestic market, the Australian Competition and Consumer Commission wrote in a statement today.
The takeover has received regulatory approvals from the US, Brazil and the European Union, while Shell also needs clearance from China.
The regulator said the mega-merger would allow Shell to send the Arrow supplies to BG’s Queensland Curtis liquefied natural gas project on the east coast, which is super-cooling the fuel for export to customers in Asia.
The regulator has been studying the Shell agreement amid a broader review of the gas market on the east coast.
“The arrival of the major LNG projects has upended the east coast gas market, likely permanently,” Rod Sims, chairman of the commission, said in a copy of a speech to be given in Sydney. “Gas user complaints about a dearth of offers for the supply of gas in recent years are largely true.”
Shell and PetroChina have been looking at alternatives for their Arrow gas project after shelving plans to build an export terminal due to cost blowouts and slumping energy prices. Santos Ltd. and a ConocoPhillips venture with Origin Energy Ltd. are also building LNG plants in Queensland.
“The ACCC’s preliminary view is that the proposed acquisition will align Shell’s Arrow interests with BG’s interest in QCLNG, which may see Shell prioritise supply to LNG,” Sims said.
The Shell deal “potentially further consolidates gas reserves” on the east coast of Australia, where a small group led by the Queensland LNG projects control about 90% of the supplies, Australian manufacturer Adelaide Brighton Ltd. wrote in documents lodged with the ACCC in July.
Wholesale gas prices in Australia are forecast to double over the next two years as a significant amount of the supplies in eastern Australia are committed to the export market, Australia & New Zealand Banking Group said in a July report.
The proposed acquisition is “unlikely to increase the ability or incentive of Shell to foreclose supply of gas to rival LNG plants because the merged entity would only supply a small share of the global LNG market,” according to the regulator.
Earlier this week, Shell boss Ben Van Beurden, said concern by investors that Shell will not complete its planned acquisition of BG Group has been exaggerated.
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