ISSN NO. 0114-2720 J5659 PUBLIC VERSION COMMERCE COMMISSION DETERMINATION Decision 505 Determination pursuant to the Commerce Act 1986 in the matter of an application for authorisation of a restrictive trade practice. The Application is made by: OMV NEW ZEALAND LIMITED; SHELL EXPLORATION NEW ZEALAND LIMITED; SHELL (PETROLEUM MINING) COMPANY LIMITED; TODD (PETROLEUM MINING COMPANY) LIMITED The Commission: P R Rebstock, Acting Chair D R Bates QC S W Stevens Summary of Application: The Applicants have applied for authorisation to enter into arrangements to jointly market and sell gas produced from the Pohokura natural gas field. Determination: Pursuant to sections 58 and 61(1)(a) of the Commerce Act 1986, the Commerce Commission determines, to authorise the Application, subject to specific conditions. Date of Determination: 1 September 2003 CONFIDENTIAL MATERIAL IN THIS REPORT IS CONTAINED IN SQUARE BRACKETS. 2 TABLE OF CONTENTS EXECUTIVE SUMMARY .....................................................................................................6 Introduction..........................................................................................................................6 Framework for Consideration ............................................................................................7 Commission Process.............................................................................................................7 The Factual and Counterfactual.........................................................................................7 The Factual....................................................................................................................... 8 The Counterfactual ........................................................................................................... 8 Market Definition and Competition Analysis....................................................................8 Detriments.............................................................................................................................9 Benefits..................................................................................................................................9 Net Effect.............................................................................................................................10 Conditions ...........................................................................................................................10 Overall Conclusion.............................................................................................................10 Determination.....................................................................................................................11 INTRODUCTION..................................................................................................................12 The Arrangement...............................................................................................................13 COMMISSION PROCEDURES..........................................................................................13 THE PARTIES.......................................................................................................................15 OMV........................................................................................................................................15 Shell .....................................................................................................................................15 Todd.....................................................................................................................................16 Relationship Between Shell and Todd..............................................................................16 Other Relevant Parties ......................................................................................................17 Electricity Generators..................................................................................................... 17 Petrochemical Firms....................................................................................................... 17 Major Industrial Users ................................................................................................... 17 Residential ...................................................................................................................... 18 Exploration Companies .................................................................................................. 18 Production/Reserves Ownership..................................................................................... 18 Transmission................................................................................................................... 19 Distribution..................................................................................................................... 19 Retail............................................................................................................................... 19 Australian Competition and Consumer Commission (“ACCC”)................................... 19 The Victorian Energy Networks Corporation (“VENCorp”)......................................... 19 GOVERNMENT POLICY STATEMENTS .......................................................................20 The Statements ...................................................................................................................20 The Applicants’ Submission..............................................................................................21 The Commission’s Conclusions ........................................................................................21 Progress on the Gas Industry Developments...................................................................22 3 INDUSTRY BACKGROUND ..............................................................................................22 Ownership of and Production from Natural Gas Fields in New Zealand ....................23 The Pohokura Field ........................................................................................................ 25 Previous Statements by the Applicants........................................................................25 The Maui Field................................................................................................................ 27 The Maui Re-determination.........................................................................................28 The Kapuni Field ............................................................................................................ 29 The TAWN Fields............................................................................................................ 29 The Mangahewa Field .................................................................................................... 30 The McKee Field............................................................................................................. 30 The Kaimiro Field........................................................................................................... 30 The Rimu Field................................................................................................................ 30 Licensing Regime and Exploration...................................................................................31 Consumption of Natural Gas in New Zealand ................................................................32 Transmission and Distribution of Gas .............................................................................33 Reserves of Natural Gas ....................................................................................................33 Future Gas Discoveries......................................................................................................34 Sales of Gas .........................................................................................................................34 Joint Ventures and Petroleum Exploration and Production .........................................35 Gas Balancing.....................................................................................................................36 THE MED REVIEW OF THE NEW ZEALAND GAS SECTOR ...................................37 THE AUSTRALIAN EXPERIENCE ..................................................................................37 ACCC Decisions .................................................................................................................37 ACCC’s Determination of the North West Shelf Project – 29 July 1998 ....................... 37 ACCC’s Determination of the Mereenie Producers – 7 April 1999............................... 38 Council of Australian Governments – Energy Market Review.....................................39 Two Examples of Separate Marketing in Australia........................................................43 Geographe/Thylacine...................................................................................................... 43 Yolla................................................................................................................................ 44 VENCorp ............................................................................................................................47 ACCC ..................................................................................................................................47 Other Submissions .............................................................................................................48