Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Australian competition commission report highlights competition in natural gas market, (Apr 26, 2016)

By Linda O’Brien, J.D., LL.M.

The Australian Competition and Consumer Commission (ACCC) released the report of its inquiry into the competitiveness of wholesale gas prices in eastern and southern Australia. According to the report, the introduction of liquefied natural gas (LNG) and with its exposure to international gas pricing; a fall in oil prices leading to a downturn in exploration and new development; and regulatory uncertainty has created an increasingly complex environment for gas market participants.

The scope of the ACCC’s inquiry into natural gas markets was to consider: (1) the availability and competitiveness of offers to supply gas and the competitiveness and transparency of gas prices; (2) the competitiveness of, access to, and any restrictions on market structures for gas production, gas processing, and gas transportation; (3) the significance of barriers to entry into the upstream production sector; (4) the existence of, or potential for, anticompetitive behavior and the impact of such behavior on purchasers of gas; and (5) transaction costs, information transparency, including gas supply contractual terms and conditions, and other factors influencing the competitiveness of the markets.

“The future supply outlook is uncertain. Meeting future domestic and LNG demand will require extensive development of undeveloped gas reserves and resources,” the report stated. “Sufficient gas is currently forecast to be produced in the East coast gas market to meet domestic demand and existing LNG contract commitments until at least 2025, but there is uncertainty over the timing of some developments, particularly due to low oil prices.”

The report made several recommendations that the COAG Energy Council and state and territory governments could consider to alleviate gas market issues, particularly for industrial users. These include enabling new gas supply to come to market, in particular in south eastern Australia; revisiting the regulatory coverage of pipelines, increasing the ability for pipelines with market power to be regulated, and the consistency and transparency of the provision of information to the market.

The ACCC also will consider some practices in the market, including the joint marketing of the Gippsland Basin Joint Venture between Esso and BHPB.

“There has been unprecedented change in the East gas market over the last four years with the development of liquefied natural gas facilities in Queensland,” said ACCC Chairman Rod Sims. “These changes have created winners and losers, and industrial gas users in particular have been acutely affected by the transition.”

“Some suppliers have taken advantage of this supply uncertainty and potential shortfalls to increase prices and implement more restrictive non-price terms and conditions,” Sims stated.

News: Antitrust