The competition watchdog has given its final approval to the Gorgon gas project partners to jointly market gas sales to the Western Australian market, despite protests it will drive gas prices higher.
The competition watchdog has given its final approval to the Gorgon gas project partners to jointly market gas sales to the Western Australian market, despite protests that it will drive gas prices higher.
The approval from the Australian Competition and Consumer Commission follows a draft determination in September to allow Chevron, ExxonMobil and Shell to jointly market the gas from the $43 billion Gorgon project to the domestic market.
The project is expected to supply gas to the WA market from late 2015. The Gorgon partners have already signed an agreement with the state government to reserve 2,000 petajoules from the project for the domestic market.
In a statement today, the ACCC said it noted the opposition from a number of large gas customers - spearheaded by the Domgas Alliance - towards the joint marketing arrangement.
"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," ACCC acting chairman Peter Kell said.
"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 added that were the Gorgon partners to market the gas separately, the partners could face significant risks that could result in a delay to the start of production, producing lower volumes of gas or increasing prices to reflect the higher risk.
It has also imposed a number of conditions relating to the ring fencing arrangements within the Gorgon JV, which were designed to prevent commercially sensitive information from being transferred to competing gas producing projects.
The authorisation is granted until the end of December 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," the ACCC said in a statement.
"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."
In an email to WA Business News, a Chevron spokesperson said the petroleum company welcomed the news.
"Chevron welcomes the ACCC's final determination allowing co-ordinated marketing of Gorgon domestic gas," the spokesperson said.
"Gorgon domgas will provide an important new gas source for WA consumers."
The Domgas Alliance, which counts Alinta, Verve Energy, Alcoa and Fortescue Metals Group as its members, today said it was dismayed by the ACCC's decision.
"The ACCC ignored the views of consumers and relied exclusively on the claims made by Shell, Chevron and ExxonMobil," Domgas Alliance chairman Tony Petersen said.
"As a result, every business and household will be paying more for their gas and electricity."
Domgas said the ACCC's own commissioned Allen Consulting Group report warned that authorisation for joint selling will lead to higher prices for consumers.
"It is illogical for the ACCC to conclude that three of the world's biggest oil and gas companies need the protection of joint selling arrangements to sell their 5 per cent of Gorgon gas to Australian consumers," Mr Petersen said.
"They sell separately and compete with each other when marketing 95 per cent of Gorgon gas to overseas LNG customers."
"The ACCC's decision means the biggest companies in China and India will enjoy the benefits of competition, while this was denied to Australian consumers."
"WA domestic gas prices are already among the highest of any gas producing or exporting economy in the world and now the ACCC has decided that less competition will be good for consumers."
In a separate statement, Alcoa said it was disappointed with the ACCC decision.
"Alcoa ... is fully supportive of the views expressed by the Alliance in relation to the ACCC decision, in particular the Commission's seeming lack of regard to opposition by industry, power generators, infrastructure operators and gas consumers as presented in written submissions," tne company said.
"Alcoa, like the DomGas Alliance, is very concerned that in allowing some of the world's biggest oil and gas companies to jointly sell gas to the well established Western Australian market, gas prices will rise dramatically for all consumers including small business and householders."
Australian Petroleum Production and Exploration Association WA director Tom Baddeley said that everyone should respect the ACCC's decision.
"This is a decision reached not by the industry, not by government but by Australia's competition watchdog," he told WA Business News.
"The umpire has made its decision and we should all accept it and move on."
The ACCC announcement is below:
The Australian Competition and Consumer Commission today issued a decision allowing natural gas produced from the Gorgon Gas Project to be jointly marketed and sold to customers in Western Australia by the Gorgon partners.
The Gorgon Gas Project is forecast 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.
Authorisation is granted until 31 December 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 authorisation for the joint marketing and sale of domestic natural gas after 2015, they retain the option of reapplying for authorisation. The ACCC would reconsider the dynamics of the WA market at that time.