On 8 September 2010, the Australian Competition and Consumer Commission (ACCC) published a decision authorising north west shelf joint venture (NWSV) participants to jointly market domestic gas.

The NWSV has been in operation since the 1970s. It has six participants- Woodside Energy Ltd, BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, BHP Billiton (North West Shelf) Pty Ltd, Shell Development (Australia) Proprietary Limited and Japan Australia LNG (MIMI) Pty Ltd (which joined the venture in the mid-1980s).

In 1975, the joint venturers sought authorisation under section 88 of the (then recently introduced) Trade Practices Act 1974 (Cth) (TPA). An agreement between competitors that fixes prices, rigs bids, shares markets, restricts output or substantially lessens competition (absent an authorisation) is prohibited by the TPA. The joint venturers sought to be able to discuss and agree common terms and conditions (including price) for the marketing and supply of natural gas to consumers at all levels of the supply chain.

In 1977, the then Trade Practices Commission (TPC) (which later became the ACCC) authorised the joint venture participants to undertake the joint marketing activities. It was determined that there was a public benefit in encouraging and supporting the development of energy resources in the North West Shelf and encouraging investment in and exploration of additional energy sources. A further authorisation was granted in 1998 to cover incremental activities of the NWSV, including the participation of Japan Australia LNG (MIMI) Pty Ltd.

We have previously reported that the ACCC revoked the 1977 authorisation in March 2008 at the request of the joint venture.

On 31 March 2010, the NWSV participants applied to the ACCC afresh seeking authorisation of similar joint marketing and gas supply arrangements in Western Australia. The NSWV participants’ application for authorisation explains that due to increased interest by the ACCC, customers and government in the venture’s operations since the revocation of their authorisation, the NWSV participants saw fit to again seek authorisation.

The ACCC’s reasons for granting the authorisation are not dissimilar from the reasons expounded by the TPC in 1977. It was determined that it would not be commercially feasible for the NWSV participants to individually market and supply gas due to likely additional commercial risk in balancing volumes. The increased risk is seen as threatening the level of supply that will be made available by gas producers in what the ACCC sees as an “illiquid” market due to high levels of demand. As such the supply of higher gas volumes is viewed as an important public benefit.

The ACCC also links illiquidity of gas supply to the immaturity of the Western Australian gas market. The approach adopted by the ACCC somewhat reflects that adopted by the ACCC in its November 2009 conditional authorisation permitting the participants in the Gorgon Gas Project to jointly market their gas entitlements for supply in Western Australia (Gorgon Authorisation). The Western Australian gas market has been characterised traditionally by a high concentration of suppliers, purchasers, limited gas transport options and often long term contracts. As such, the ACCC has sought to encourage the development of new gas projects such as Gorgon by allowing joint marketing to occur to stimulate market change.

Submissions made by interested parties to the ACCC argued that there was no longer a compelling public benefit argument in support of the joint activities as the gas market is substantial and competitive. It was stated that a lack of competition between the joint venturers (who as a group control the majority of domestic gas production in Western Australia) was a reason for higher gas prices in Western Australia in recent times.

The ACCC acknowledged the comments of the interested parties but did not consider those arguments to be sufficiently persuasive to counter the perceived public benefits of authorising the conduct. In acknowledging that there is a risk of anti-competitive detriment arising from the sharing of commercially sensitive information between NWSV participants, the ACCC has authorised the venture subject to the NWSV participants adhering to a ring fencing protocol.

With the Gorgon Gas Project and other potential entry on the horizon, the ACCC anticipates that the Western Australian gas market will develop in the medium term. Accordingly, and consistent with the Gorgon Authorisation, the ACCC authorised the NWSV activities until 31 December 2015 (and will allow the applicants to give effect to contracts entered into during the term of the authorisation for a period not exceeding 15 years from the date of first delivery of gas). At that time, the ACCC can holistically assess both joint ventures in the context of any developments in the gas market and make a consistent decision about the TPA implications of the ventures going forward.