Australian Competition and Consumer Commission (ACCC) has issued a draft decision proposing to allow joint marketing of natural gas to customers in Western Australia by the members of the Gorgon gas project joint venture. Under an agreement with the Western Australia Government, 2,000 petajoules of natural gas is required to be supplied as domestic gas (domgas) to consumers in Western Australia, over the life of the project. The project is forecast to commence domgas production in 2015.
“Joint marketing is likely to mean Gorgon gas is supplied to Western Australia sooner than it otherwise would be,” ACCC Chairman, Graeme Samuel, said. “This will provide a much needed increase in gas supply for consumers in Western Australia.”
A number of large gas buyers strongly opposed the joint marketing arrangements. They believe joint marketing will result in less competition and higher prices.
However, the ACCC considers that features of the current Western Australia’s domgas market are likely to create significant barriers to effective separate marketing and are likely to result in inefficient outcomes for the industry. These features include:
– the ‘lumpy’ demand profile of the market, with a small number of large domgas customers with long term contracts.
–the lack of liquidity in the market demonstrated by little trading and no well developed secondary markets.
– very limited gas storage options.
These market features are likely to impose an additional investment risk on the joint venture partners, in particular in relation to the likelihood of them being able to sell all their share of the project’s domgas obligations. The ACCC is concerned that this greater risk is likely to impact on the start date of domgas supply from the Gorgon project, the volume, and the price.
Concerns have also been raised that joint marketing may result in commercially sensitive information obtained from domgas customers being transferred to competing parties or competing projects in Western Australia, which could undermine competition.
The ACCC is proposing to impose a number of conditions relating to ring fencing arrangements to address these concerns.
The ACCC is proposing to grant authorization until December 31 2015, which is a shorter time frame than that sought by the joint venture partners. There are a number of other potential new gas projects forecast to come on stream around this time. This could change the nature of the Western Australia gas market.
“The ACCC considers it is appropriate to leave open the possibility of separate marketing by the Gorgon Project in the future if the Western Australia gas market develops further.”
The ACCC is seeking submissions commenting upon its proposed decision, prior to making a final decision in the coming months. Parties wishing to make submissions should do so by October 9, 2009. The Gorgon gas project 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%).