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ACCC clears Shell’s $98b takeover of BG Group

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To the relief of Shell, the Australian Competition and Consumer Commission waved through the mega-merger on Thursday…

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Angela Macdonald-Smith: Energy Reporter

East coast gas buyers left disappointed by the competition regulator’s unconditional approval for Royal Dutch Shell’s $US70 billion ($98 billion) takeover of BG Group have turned their attention to the Foreign Investment Review Board as they look for conditions to be put around the deal.

To the relief of Shell, the Australian Competition and Consumer Commission waved through the mega-merger on Thursday, which will align the oil giant’s undeveloped gas in Queensland – held in the Arrow venture with PetroChina – with BG’s $28 billion LNG export project in Gladstone.

Industrial gas users in Queensland and NSW had been pushing strongly for constraints to be put around the deal to ensure gas from Arrow would be made available to domestic buyers instead of to LNG exports.

The ACCC had taken the concerns on board, outlining its reservations in a “statement of issues” in September, which raised worldwide concerns that the deal could be blocked or delayed.

But ACCC chairman Rod Sims said on Thursday the regulator had to limit its examination of this deal to strict competition of supply issues, and that broader concerns about the eastern states’ gas market were being examined in its ongoing east coast gas inquiry.

Mr Sims said that given Arrow wasn’t focused on supplying customers within the state, and was unlikely to do so in future, the acquisition wouldn’t change anything.

“We’re not in the business of shaping markets; we’re in the business of assessing mergers for a substantial lessening of competition,” he said.

Manufacturing Australia, which had proposed several different options the regulator could consider to constrain the deal, said it was “disappointed” but noted the decision was based on the narrow remit of the ACCC. In contrast, FIRB has a duty to consider the national interest, it pointed out, voicing hope that conditions on the merger may still be considered.

“We still maintain that it’s in the national interest that gas is available for domestic use,” Manufacturing Australia chairman Mark Chellew said, pointing to similarities with the Treasurer’s 2001 rejection of Shell’s takeover of Woodside Petroleum because of worries that Shell would prioritise the development of its gas over the North West Shelf.

In the national interest

“Our fear with this one is that Shell and BG might go, ‘well this is is good gas that we don’t need to develop it, maybe we’ll develop it in 10 years’ time,” Mr Chellew said.

“I don’t think that’s in the national interest, I think it’s in the national interest that this gas gets developed quickly.”

Shell wouldn’t comment on the scrutiny of the deal by FIRB, but Australia country chair Andrew Smith said last week in an interview that the key issue was getting more gas into the market and that the quickest way of doing that was through the takeover.

Mr Smith said the domestic market in the eastern states wasn’t big enough to justify the investment to develop Arrow gas, which needed an LNG-scale project to proceed.

The ACCC ruling came just days after a decision was made to build a $800 million pipeline to deliver gas from the Northern Territory into the Queensland market, which Mr Sims said was welcome to increase supply.

Responding to the green light from the ACCC, Shell’s global chief executive Ben van Beurden said that buying BG was “a sign of Shell’s confidence in the Australian economy”.

“The addition of BG’s integrated gas assets in Australia to Shell’s global portfolio is one of the main strategic drivers behind the recommended combination, making ACCC approval a major step forward for the deal,” Mr van Beurden said.

Shell is aiming to complete the takeover of BG in early 2016, with approvals from FIRB and China’s Ministry of Commerce the key ticks still outstanding.

Under pressure

It said the filing process in China “continues to progress well”.

Meanwhile, the ACCC approval has put more pressure on the east coast gas market inquiry to deliver for gas buyers, who are facing higher prices because of the Gladstone LNG plants, which are set to triple gas demand within two years.

Mr Sims said the regulator still had “a fair way to go” in its inquiry, which would only report in April.

“We’ve spoken to everyone in the industry in detail and we’re working out what to do with it all,” he said.

He wasn’t able to offer any assurances to gas buyers that the inquiry would result in more competitive supplies of gas but said the regulator was well aware of the problems.

The Shell-BG merger will increase the proportion of east coast gas reserves that is linked to an LNG export project from two-thirds to 80 to 85 per cent, Mr Sims noted.

Read more: http://www.smh.com.au/business/energy/accc-clears-shells-us70b-takeover-of-bg-group-20151118-gl2hwl.html#ixzz3rv3DioLE

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