ACCC Approves Shell, BG Merger

The Australian Competition and Consumer Commission will not oppose the proposed acquisition by Royal Dutch Shell (RYDAF) (Shell) of BG Group (BRGXF) (BG).

“The ACCC’s view is that the proposed acquisition would be unlikely to substantially lessen competition in the wholesale natural gas market, in either Queensland or eastern Australia more broadly,” ACCC Chairman Rod Sims said.

The ACCC considered whether the proposed acquisition would reduce the supply of gas, or reduce competition to supply gas, to domestic customers by aligning Shell’s interest in Arrow Energy with BG’s LNG facilities in Queensland.

“The ACCC concluded that as Arrow is not currently focussed on supplying domestic customers, and appears unlikely to be so in the future, aligning Arrow with an LNG operator would not change competition for the supply of gas to domestic customers,” Mr Sims said.

The ACCC also considered whether the proposed acquisition would be likely to lessen competition for the supply of gas to domestic customers by removing the potential for competition between Arrow and BG.

“While recognising the current high degree of uncertainty about the future development of the industry, the ACCC considers that BG’s focus is on supplying the QCLNG facilities. A key issue was whether, in the absence of the proposed acquisition, BG and Arrow would both have excess gas above their LNG commitments and whether they would offer that gas to domestic customers,” Mr Sims said.

“However, there is too much uncertainty about the amount and timing of future gas supplies for the ACCC to be satisfied that Arrow and BG would be meaningful competitors in the domestic market in the absence of the acquisition.”

During its review, the ACCC received a large number of submissions from market participants concerned about the competition effects of the proposed acquisition and the current state of the east Australian gas market.

Some urged the ACCC to approve the acquisition, but only with undertakings from the merger parties to make gas available domestically. These market participants considered that the proposed acquisition may provide a ‘route to market’ that allows Arrow’s gas to be developed more quickly.

“In the course of its review, the ACCC considered potential undertakings suggested by interested parties,” Mr Sims said.

“The ACCC can, however, only accept undertakings where competition concerns arise from the acquisition and it finds that certain undertakings can effectively address those concerns. In this case, the ACCC did not find merger-specific competition concerns that required an undertaking to remedy.”

“While it was considered that undertakings were not ultimately necessary, crafting an effective undertaking in this case would have been extremely difficult in any event,” Mr Sims said.

“The ACCC will continue to consider many of the issues raised by gas users about the structure of the industry as part of its East Coast Gas Inquiry.”

Background

The East Coast Gas Inquiry is a separate 12 month review being conducted by the ACCC into the competitiveness and structure of the east Australian gas industry. It is scheduled to be finalised with a report to the Minister in April 2016.

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.

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 LNG joint venture, QCLNG. 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, through its subsidiary QGC.

The proposed acquisition is also conditional on approval by China’s competition authority and Australia’s Foreign Investment Review Board. It has already received merger clearance by competition authorities in the United States, Brazil, Europe, Japan and Korea.