Australia looks to end ExxonMobil, BHP Joint Gas Sales

Australia's competition watchdog wants to break up a marketing joint venture between ExxonMobil Corp and BHP Billiton (BHPLF) to help boost competition in the eastern Australian gas market, it said on Friday.

Following a year-long investigation into gas supply concerns, the Australian Competition and Consumer Commission (ACCC) concluded suppliers have "taken advantage" of potentially lower gas supply to eastern Australia end-users to raise prices and place onerous conditions on buyers.

The study also found that pipeline operators in the region exercised market power to implement monopoly pricing. The operators were getting away with charging rates that gave them a return on equity up to 20 times higher than in recent decisions by the nation's energy regulator, the ACCC said.

The gas supply tightness driving the higher prices followed new liquefied natural gas (LNGLF) (LNG) plants built to export gas from Queensland that left less available for the domestic market.

At the same time, with production declining in southern Australian states including Victoria, gas users are becoming more dependent on supply from the Bass Strait, produced and sold by ExxonMobil and BHP's Gippsland Basin Joint Venture (GBJV).

"The reduction in the diversity of gas suppliers in the southern states has substantially strengthened the competitive position of the GBJV," the ACCC said.

The commission said that gas users in the southeast states, including Victoria and New South Wales, would have to pay substantially more for gas if they had to turn to supplies piped from Queensland that also have outlets to higher-priced international markets.

One step it outlined to help deal with the problem for end-users was to consider ordering ExxonMobil and BHP to sell gas separately.

Both companies are fighting the move, with ExxonMobil saying that separate marketing would increase costs.

"Any unwinding of joint marketing will only increase those costs in the short term and make it more difficult to invest and bring on new supplies in Gippsland," it said.

BHP said the joint venture, which has been producing for more than 45 years, had served the market well and was still meeting the market's needs.

The commission also said more regulation was needed in the pipeline sector, sending shares of pipeline operator APA Group down 3 percent on Friday.

Manufacturers, including explosives and fertiliser maker Incitec Pivot Ltd, prompted the investigation, saying they were having difficulty lining up long-term gas supplies beyond 2016, which coincided with the start of LNG exports.

"The additional ACCC reviews, in particular the investigation of the Gippsland Basin Joint Marketing Arrangements, are very important and should proceed quickly," Manufacturing Australia Chairman Mark Chellew said in an emailed statement.

Reporting by Sonali Paul