ACCC allows joint sale of NW shelf gas

The competition watchdog said yesterday a decision to allow the partners in Western Australia's North West Shelf gas project to continue to jointly market and sell natural gas to WA customers was made to avoid "significant commercial risk".

In its ruling, the Australian Competition and Consumer Commission said that joint marketing of the gas would result in a higher level of gas delivered to WA consumers because separate marketing of the gas would result in decreased production from the North West Shelf.

The ACCC's full announcement is below:

ACCC ALLOWS JOINT MARKETING OF NATURAL GAS FROM THE
NORTH WEST SHELF PROJECT

The Australian Competition and Consumer Commission today issued a decision
allowing the partners in the North West Shelf Gas Project to jointly market and sell
natural gas produced from the project to customers in Western Australia.

The North West Project partners* jointly commenced deliveries of natural gas to WA
customers in 1984 and all of the gas supplied since then has been jointly marketed
and sold.

On two previous occasions the partners have had these joint marketing activities
authorised by the ACCC and its predecessor the Trade Practices Commission.

"The ACCC is of the view that joint marketing by the North West Shelf Project
partners is likely to result in a higher level of gas being supplied into WA than would
be the case were the partners to separately market," ACCC Chairman, Mr Graeme
Samuel said.

The ACCC considers that were the North West Shelf partners to attempt to
separately market in the illiquid and immature WA market they would face significant
commercial risks such that the level of North West Shelf production may be lower
than would be the case under separate marketing.

Additionally, the ACCC is concerned that these risks may impact on the feasibility of
future investment in the North West Shelf fields and infrastructure to enable
continued supply to WA customers from the Project beyond 2020.

"As noted by a number of industry participants, the WA natural gas market is
currently experiencing tightness in supply that is likely to persist in the short to
medium term."

"Noting the concerns of industry participants about current and potentially future
supply scarcity, the ACCC considers that the likely higher supply from the North West
Project through the partners' joint marketing activities constitutes a significant public
benefit."

"While the ACCC accepts that the price of natural gas has increased sharply in WA
in recent years and that it is higher than prices in eastern states, the ACCC does not
consider that this is a result of joint marketing."

Western Australia has a number of fundamental differences to the eastern states,
including the rapid increase in demand for energy from the resources sector, strong
growth in the LNG export sector and the high cost of new field development, which all
will have contributed to higher prices.

"Gas has always been jointly marketed in Western Australia by the NWS Project -
including when gas was being sold for an extended period of time at historically low
prices."

In the current market circumstances, joint or separate marketing by the NWS Project
in and of itself is unlikely to have a significant impact on gas prices in Western
Australia.

The ACCC is imposing ring fencing conditions designed to prevent commercially
sensitive information obtained by individual North West Shelf partners being
transferred to competing projects in which they participate.

Authorisation is granted until 31 December 2015, which is the same date as the
Gorgon Gas Project authorisation that was granted in November 2009.
The ACCC
considers that with a number of gas projects forecast to commence production in WA
in the next five years, such as Reindeer and Macedon, coupled with developments
such as the implementation of a Gas Bulletin Board and increasing storage capacity,
there exists some potential for the WA market to mature.

Were the North West Shelf and Gorgon partners both to seek reauthorisation at the
end of 2015 it will provide an opportunity for the ACCC to assess the development of
the market.

A copy of the ACCC's determination will be available from the ACCC website,
www.accc.gov.au/AuthorisationsRegister.

*The North West Shelf Project partners are: BHP Billiton Petroleum, BP
Developments Australia, Chevron Australia, Japan Australia LNG (MIMI), Shell
Development Australia and Woodside Energy.

In November 2009, the ACCC granted authorisation to the Gorgon Gas Project joint
venture participants (Chevron Australia Pty Ltd, Chevron (TAPL) Pty Ltd, Mobil
Australia Resources Company Pty Ltd and Shell Development (Australia) Pty Ltd) to
jointly market and sell their natural gas entitlements from the Gorgon project for
supply in WA until 31 December 2015.