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Australian Regulators Put the Brakes on Proposed Shell-BG Merger

Regulators with Australia's Competition and Consumer Commission (ACCC) said they are concerned that Royal Dutch Shell plc's proposal to purchase UK-based BG Group plc could lead to higher natural gas prices, and they have postponed a decision on whether to approve the merger for two months.

ACCC said Thursday it is concerned that under the proposed $70 billion deal, Shell could align its 50% stake in Arrow Energy Holdings Pty Ltd -- a coal-seam gas company based in Queensland state -- with BG's liquefied natural gas (LNG) facilities in the same state.

Specifically, ACCC said Shell could decide to prioritize supplying BG's Queensland Curtis LNG (QCLNG) facility with some -- or possibly all -- of Arrow's natural gas, in order to help BG meet its LNG export contracts. That could harm Australia's domestic natural gas market.

"Currently, Arrow has the largest quantity of uncommitted gas reserves in eastern Australia and there are a limited number of other potential suppliers to the domestic market," ACCC Chairman Rod Sims said. "If the proposed acquisition resulted in less supply of gas to the domestic market...this could substantially lessen competition to supply domestic gas users and lead to higher domestic prices and more restrictive contractual terms."

ACCC said it had received a "large number" of comments from affected stakeholders about the proposed merger. In response, the regulatory agency said it was extending the deadline for comments on the matter until Oct. 8, and would render a decision by Nov. 12.

Shell disagreed with ACCC's assessment. "Arrow and QCLNG collaboration could assist the development of Arrow's undeveloped resources to potentially accelerate additional gas supplies into both the domestic and export market," Shell told Reuters.

The deal was announced in April and is worth about US$69.6 billion. It would grow Shell’s proved reserves by about 25% and make it the world's largest producer of LNG (see Daily GPI, April 8).

Approval by the ACCC is one of five pre-conditions necessary for the merger. Earlier this month, the European Commission approved the deal after it conducted an antitrust investigation into the matter (see Daily GPISept. 3). Brazil's competition authority, the Council for Economic Defense, approved the merger on July 24.

The remaining two pre-conditions are for antitrust clearance from China's Ministry of Commerce and foreign investment approval under Australia's Foreign Acquisitions and Takeovers Act.

The proposed merger received early termination of the U.S. antitrust waiting period from the U.S. Federal Trade Commission on June 16.

Shell said it hopes to close the deal in early 2016.

QCLNG loaded its first LNG cargo onto a ship in July (see Daily GPIJuly 13). PetroChina owns the remaining 50% stake in Arrow (see Daily GPIOct. 28, 2011).

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