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Warning on Shell megadeal

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Screen Shot 2015-06-23 at 14.20.29JOHN DAGGE: HERALD SUN: MELBOURNE: JUNE 24, 2015

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ONE of Australia’s biggest plastic makers has added its voice to concerns about Shell’s planned takeover of BG Group, saying further consolidation in the gas industry will likely harm manufacturers. 

Melbourne-based Qenos has also attacked Victoria’s ban on onshore oil and gas drilling, saying the restriction put at risk a new wave of major investment in the nation’s petrochemical and plastics industry.

Chief executive Jonathan Clancy told BusinessDaily Royal Dutch Shell’s $91 billion push to swallow British rival BG ran the risk of increasing consolidation among gas producers at a time when manufacturers needed more suppliers.

“For a true market to exist you have got to have multiple suppliers and multiple customers and a fair market determining a fair price,” Mr Clancy said.

“When you have an imbalance, when you don’t have the attributes of a traditional market, you’ve got a monopoly, oligopoly scenario and that is what we have with gas.

“You don’t have the normal attributes of supply and demand balance in terms of production nor in the transportation of gas.”

Qenos employs more than 700 workers and its Altona plant is the biggest production centre for petrochemicals and plastics in Australia.

Mr Clancy also chairs the Plastics and Chemicals Industries Association. Australian Competition and Consumer Commission chairman Rod Sims is probing the Shell-BG takeover — one of the biggest energy deals in history — and also pushing ahead with a year-long inquiry into the east coast wholesale gas market.

Manufacturers complain rising gas prices, difficulties in sourcing long-term contracts and an opaque pricing structure threaten local jobs.

Explosives and fertiliser maker Incitec Pivot has also raised concern about Shell’s bid for BG but noted it would be a positive if it led to the development of Queensland’s Arrow gas acreage that Shell jointly owns with PetroChina.

Mr Clancy said Victoria’s freeze on developing onshore gas reserves was “a travesty” and out of touch with the latest science around the risk posed by unconventional production techniques.

Allowing gas to be tapped in places such as the Otway Basin would lower the barrier for companies such as Qenos to make new investments, he said.

“We have boardrooms — including my own — which see Australia as an ideal place to invest but we need sub-$5 (a gigajoule) gas to make that a reality,” he said. “There is no point whatsoever in making it more difficult for … (gas) producers to invest in Australia.”

Historically gas has traded at $3 to $4 a gigajoule in Australia but that will rise as the nation becomes a major exporter in coming years.

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