06/08/2009 - 06:47

Gorgon marketing to affect WA gas price

06/08/2009 - 06:47

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An independent report prepared for the national competition watchdog has found that allowing joint marketing of gas from the Gorgon project would likely lead to higher prices for WA gas customers than if each partner was forced to market its share separat

Gorgon marketing to affect WA gas price

An independent report prepared for the national competition watchdog has found that allowing joint marketing of gas from the Gorgon project would likely lead to higher prices for WA gas customers than if each partner was forced to market its share separately.

The Allen Consulting Group study was commissioned by the Australian Competition and Consumer Commission ahead of the watchdog's final ruling, expected next month, on whether to allow the Gorgon partners - Chevron, Shell and Exxon Mobil - to collectively market gas for the domestic market.

The report comes six weeks after the ACCC granted the partners an interim reprieve to jointly test the waters of the local market given the imminence of a final investment decision for the $50 billion Gorgon project, which is expected within six weeks.

The Allen Consulting report found that while it was reasonable for the interim ruling to be granted, a number of the arguments put forward by the partners in favour of joint marketing were debatable.

In particular, it noted that joint marketing for domestic sales was not likely to be crucial to the viability of the project, as domestic gas sales would account for less than five per cent of Gorgon's total resources and revenue.

It also found that while joint marketing was common in immature gas markets such as WA, gas from several far smaller projects than Gorgon - such as the Reindeer and John Brookes projects - was already being marketed separately by their respective joint venture participants.

The report also noted that as three of the western world's biggest energy companies, the Gorgon partners had significant financial strength to help combat the added costs of separate marketing.

On the issue of gas pricing, the report found that while allowing full vertical integration of the project may lead to lower overall costs, it was "most likely that prices in the downstream markets will rise due to monopolisation effects".

Conversely, "on balance, these prices will probably be lower if the GGJV markets separately rather than jointly because of the weakened bargaining power of the sellers".

DomGas Alliance chairman Tony Petersen said the report vindicated the alliance's argument that joint marketing would simply lead to higher gas prices for WA industry.

"Cartel selling impacts every business and household through higher gas and electricity prices," Mr Petersen said.

"The ACCC must now act and require the world's biggest oil companies to sell separately. Failure to do so will lead to anti-competitive behaviour with higher gas and electricity prices for all West Australians."

Gorgon operator Chevron has been contacted for comment.

 

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