BHP Billiton Petroleum (Bass Strait) Pty Ltd (BHP) and Esso Australia Resources Pty Ltd (Esso) have provided court enforceable undertakings to separately market their share of gas produced under the Gippsland Basin Joint Venture (GBJV) from 1 January 2019.
The ACCC investigated the effect of joint marketing arrangements between BHP and Esso during the period from late 2013 to 2015, after concerns arose about those arrangements during the ACCC’s 2015 East Coast Gas Inquiry.
BHP and Esso’s market power as a supplier for gas supply in the southern states increased significantly from 2010 to 2015. Under the joint marketing arrangements, BHP and Esso discussed and agreed the price and other terms on which the joint venture would offer to supply buyers.
“The Gippsland Basin Joint Venture is the largest producer of gas in the southern states, with production expected to reach a record level of 330 petajoules in 2017. Wholesale gas buyers in this region have become highly reliant on the Gippsland Basin Joint Venture as their primary source of supply,” ACCC Chairman Rod Sims said.
“The ACCC was concerned that the joint marketing arrangements were likely to have resulted in a substantial lessening of competition in the market for the supply of gas to buyers in the southern states. We believe that competition in this market was negatively affected by the elimination of independent rivalry between BHP and Esso.”
BHP and Esso, without admission, have each provided the ACCC with a court enforceable undertaking that requires them to separately market GBJV gas from 1 January 2019 so that buyers will have the benefit of competing and potentially different offers from Esso and BHP in the future.
“The ACCC’s intervention should improve the competitive landscape for gas buyers on the east coast. We expect gas buyers will receive improved prices and contract terms for supply,” Mr Sims said.
“The ACCC continues to monitor the Australian gas markets and availability of contracts as part of its current gas inquiry. It is vital to commercial and industrial customers that this sector becomes more competitive.”
BHP and Esso have each committed to cease jointly negotiating and entering into gas sales agreements for the supply of GBJV gas from 1 January 2019, following a transition period that will enable the parties to put separate marketing arrangements into place.
In the transition period, the parties will only enter into new gas sales agreements for the supply of gas up to the end of 31 December 2020, except where a longer term gas sales agreement is requested by a third party, and the ACCC agrees to the request.
The GBJV is a 50/50 joint venture between BHP and Esso for the production of crude oil and natural gas at the offshore fields in the Gippsland Basin in Victoria. The GBJV was established by BHP and Esso in 1964 and has been jointly marketing its gas to customers since it commenced production in 1969.
This investigation commenced following the ACCC’s East Coast Gas Inquiry in 2015. The Inquiry identified a number of changed market conditions in the last five years, resulting in a significant reduction in the level of competitive constraint on the GBJV in south-eastern Australia. It also found that domestic users in the southern states of Australia were becoming highly reliant on gas produced by the GBJV.
Given these findings, the Inquiry report stated that the ACCC would consider the GBJV joint marketing arrangement’s effect on competition with reference to section 45 of the Competition and Consumer Act (which prohibits making and giving effect to contacts, arrangements or understandings that have the purpose or effect of substantially lessening competition).
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