Australian Competition and Consumer Commission (ACCC) has issued a decision allowing natural gas produced from the Gorgon gas project to be jointly marketed and sold to customers in Western Australia (WA) by the Gorgon partners. The project is forecasted to begin supplying customers in Western Australia with natural gas from late 2015.
Under an agreement with the WA Government, the Gorgon partners are required to reserve 2000 petajoules from the Gorgon fields for delivery to customers in Western Australia, subject to supply being commercially viable.
“The ACCC recognises that a number of large gas customers have opposed these applications for authorisation,” acting ACCC Chairman, Peter Kell said. “However, the ACCC is of the view that due to the current characteristics of the WA natural gas market, this important source of new gas supply in WA is likely to commence earlier and in larger volumes under joint marketing than would otherwise be the case.
“The ACCC notes that the WA market has experienced an increase in demand for natural gas in recent years, with corresponding price increases. The Gorgon Project will provide a welcome new source of supply that will help meet this growing demand and diversify WA’s energy supply sources.”
The ACCC is of the view that with a small number of customers comprising the bulk of demand, the preference of market participants to sign long term contracts, little short term trading of gas, and limited storage facilities, separate marketing by the Gorgon partners in the WA natural gas market is still not commercially viable at this time.
Were the Gorgon partners to attempt to separately market, the ACCC considers they would face significant risks that may result in them deferring production, producing lower volumes of gas or increasing prices to reflect higher risk.
The ACCC is imposing a number of conditions relating to the ring fencing arrangements in place within the Gorgon joint venture. These conditions are designed to prevent commercially sensitive information that will be obtained by the Gorgon joint venture being transferred to competing gas producing projects.
Authorization is granted until December 31, 2015, which is a shorter period than that sought by the Gorgon partners. The ACCC considers that in the next six years the WA gas market may develop the necessary characteristics to support separate marketing. In particular, the entry of new gas projects in addition to Gorgon, the proposed development of additional storage and a gas bulletin board could change the dynamics of the WA market.
Should the Gorgon partners consider that they still require authorization for the joint marketing and sale of domestic natural gas after 2015, they retain the option of reapplying for authorization. The ACCC would reconsider the dynamics of the WA market at that time.
Authorization provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Trade Practices Act 1974. Broadly, the ACCC may grant an authorization when it is satisfied that the public benefit from the conduct outweighs any public detriment.
The Gorgon joint venture partners are Chevron Australia Pty Ltd (17.75%), Chevron (TAPL) Pty Ltd (32.25%), Mobil Australia Resources Company Pty Ltd (25%) and Shell Development (Australia) Pty Ltd (25%).