BHP, Exxon Agree to Compete in Marketing Gas From Australian Venture

By Robb M. StewartFeaturesDow Jones Newswires

MELBOURNE, Australia--BHP Billiton Ltd. (BHP) and Exxon Mobil Corp. (XOM) will compete for customers for natural gas from their joint venture in southern Australia as part of a deal struck with the country's antitrust regulator aimed at boosting competition.

The pair have jointly marketed gas since their Gippsland Basin venture started production in 1969, but in the wake of an investigation by the Australian Competition and Consumer Commission said they would each market their share of the fuel from January 2019.

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The venture is the largest producer of natural gas in the country's southeastern states. The marketing structure has faced heightened criticism from buyers in recent years as the market has tightened and prices have jumped with the ramp-up of exports from large liquefied natural gas plants on the east coast, and as utilities have turned to gas-fired power stations to counter capacity lost with the closure of aging coal stations.

Concerned the joint ventures structure eliminated independent rivalry between BHP and Exxon's local Esso unit, the regulator began an investigation in 2015 into the affect of joint marketing efforts on competition in the marketplace.

"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.

Mr. Sims said the regulator's intervention should improve the competitive landscape for gas buyers, which should receive improved prices and contract terms.

Without any admission, BHP and Esso each agreed to provide the ACCC with a court-enforceable undertaking requiring separate marketing of their gas from the Gippsland Basin, the regulator said. It added it would continue to monitor the market and availability of contracts.

The venture would continue to meet existing contractual obligations and work with customers to ensure a smooth transition to new marketing arrangements, Exxon said. BHP said it believed it had complied with the country's Competition and Consumer Act at all times, and the voluntary decision on marketing would end uncertainty for the companies and the market.

Natural gas prices offered to commercial and industrial users have declined this week and three giant LNG plants on the coast of Queensland state have delivered more fuel into the domestic market under threat from Canberra that exports would be curbed if there was a threat of a local supply shortage. Still, the ACCC last week said recently agreed gas prices for 2018 have been at the upper end or above what it considers would be likely in a well-functioning and competitive market.

The regulator determined there was now a lower likelihood of a supply shortfall next year across the east coast market, though southern states were still expected to consumer more gas than the region produced, requiring imports from Queensland. It said it also found that some suppliers were finding it difficult to get access to the key pipelines that send gas south, worsening a tight market that already had been exacerbated by restrictions on energy exploration in some states.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

December 17, 2017 20:58 ET (01:58 GMT)