MELBOURNE (Reuters) - Some of Australia's biggest manufacturers fear a planned $70 billion (47.98 billion pounds) takeover of BG Group Plc (L:BG) by Royal Dutch Shell (L:RDSa) could potentially worsen what they see as a lack of competition in the country's eastern gas market.
Manufacturing Australia, a lobby group whose members include world no.2 explosives maker Incitec Pivot Ltd (AX:IPL) and steel maker Bluescope Steel Ltd (AX:BSL), warned that gas users seeking long term contracts were facing higher costs due to a limited number of suppliers.
The group has yet to decide whether to make a submission to a review of Shell's bid that will be carried out by Australia's competition watchdog.
"It's an issue that does raise some concern," Manufacturing Australia executive director Ben Eade told Reuters. "It's certainly not going to increase competition in a market where we think what we need is more suppliers than less."
Concerns about soaring gas prices in eastern Australia have come to a head with the start of exports from three liquefied natural gas plants (LNG) plants in Queensland, including BG's Queensland Curtis plant which opened late last year.
A report last year by Deloitte Access Economics found that manufacturing output could shrink by as much as A$120 billion (62.4 billion pounds) by 2021 due to rising gas prices as LNG exports ramped up.
Estimates of gas price rises have been based on assumptions that Australia's LNG exports would fetch $14-16 per gigajoule (GJ), although spot LNG in the Asia Pacific is trading at around $7
"It's not necessarily about price. We believe there's a great lack of competitive rivalry in the gas production market," Eade said.
The Australian Competition and Consumer Commission said on Monday it would begin an inquiry into the competitiveness of wholesale gas prices and the structure of the industry.
The inquiry, due to be completed by April 2016, will be run separately and over a longer time frame than the merger review, a commission spokeswoman said.
The review of the gas industry in eastern and southern Australia comes amid concerns raised by big manufacturers that suppliers are hoarding gas for export, and offering only limited amounts at high prices for domestic users.
"What we want to see is encouragement and incentives for a second tier of gas producers to be able to enter the market," Eade said.
Shell Chief Executive Ben van Beurden said last week the BG deal would face anti-trust scrutiny but was unlikely to lead to forced asset sales. Shell and BG together own gas reserves in eastern Australia and offshore Western Australia as well as stakes in LNG plants on both sides of the country.