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Commission authorises anti-competitive arrangement

Commission authorises anti-competitive arrangement at Pohokura gas fields subject to three conditions

The Commerce Commission has authorised three competitors to work together to jointly market and sell gas produced from the Pohokura field off the Taranaki coast. The authorisation is subject to three specific conditions.

OMV New Zealand, Shell Exploration and Todd Petroleum Mining (the Applicants) are joint venture parties for the development of the Pohokura field. They applied for an authorisation to allow them to enter into arrangements to jointly market and sell gas, rather than selling the share of their gas in competition with each other. Under the Commerce Act, competitors acting jointly are potentially anti-competitive.

Commission Acting Chair, Paula Rebstock said the decision to authorise the anti-competitive arrangement reflects the fact that in certain circumstances, the development of gas fields may require a joint venture approach in order to make the gas available to the market as quickly as possible.

“The Commission prefers separate marketing because competition is enhanced by more competitors in the market. The purchasers of the gas may be able to negotiate lower prices, and better terms and conditions when they have a choice of supplier,” said Ms Rebstock.

“Joint marketing lessens competition and represents a detriment to the economy. Detriments arise because purchasers may be required to pay higher prices for the gas and their ability to negotiate more favourable terms and conditions would be limited when dealing with only one supplier.”

Ms Rebstock added that the Commission accepts that, in this case, the joint marketing proposal may result in the earlier development of New Zealand’s largest new gas field, and that early development of the field has benefits to the public of New Zealand.

Ms Rebstock said that this decision reflected the current state of the market, and other industry parties should not automatically expect that joint marketing proposals will achieve the same result in the future.

Ms Rebstock said that in authorising this application, the Commission has imposed conditions which will ensure that the benefits are realised, and that the detriments to current and future competition in the affected market are reduced.

“The Commission considers that the only substantial benefit from the arrangements arises from the earlier development of the Pohokura field,” said Ms Rebstock.

“If, as a result of joint marketing, the Pohokura field is developed earlier than otherwise would be the case, the Commission estimates the benefits, which fall within the range of $47.8m to $81.9m, would outweigh the detriments,” she said.

“The Commission considers however, that the avoidance of delay in bringing Pohokura into production is uncertain. In order to gain some certainty that the public benefits will be achieved, and to mitigate the extent of the detriment caused by the reduction in competition arising from joint marketing, the Commission considers that it is necessary to impose conditions on the authorisation.”

The three conditions that the Commission has imposed are: the parties can market and sell gas jointly after 30 June 2006 only if the Pohokura field is fully operational by that date; if the Applicants want to sell their interests in the Pohokura field, the sale must be conditional on any purchaser(s) obtaining a clearance or an authorisation from the Commission; and the Applicants do not prevent purchasers from onward reselling of gas to third parties.

A copy of the Commission’s final determination, including the detailed conditions, is available,

Background On 20 December 2002, Preussag Energie Gmbh (“Preussag”), Shell Exploration New Zealand Limited and Shell (Petroleum Mining) Company Limited (“Shell”); and Todd (Petroleum Mining Company) Limited (“Todd”), applied to the Commission under s 58(2) of the Commerce Act 1986 for authorisation to enter into arrangements to jointly market and sell gas produced from the Pohokura field.

On 14 May 2003, the Commission was notified that OMV New Zealand Limited (“OMV”) has purchased Preussag’s participating interest in the Pohokura Joint Venture. Accordingly, the Application for authorisation made by the Pohokura Joint Venture parties on 20 December 2002 was amended by substituting OMV for Preussag.

The arrangement comprises two provisions in essence under which the applicants propose to: discuss and agree on all relevant terms and conditions, including price, quantity, rate, specification and liability for the joint sale of gas from the Pohokura field; and negotiate and enter into contracts for the sale of the Pohokura field gas jointly (i.e. as one seller).

The applicants explicitly excluded the marketing and sale of all petroleum products, other than natural gas, from the scope of their application for authorisation.

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