The Australian Competition and Consumer Commission (ACCC) has accepted a court enforceable undertaking from Esso Australia Resources Pty Ltd (Esso) under which Esso will separately sell its share of gas produced under the Gippsland Basin Joint Venture (GBJV) from 1 January 2019, and will no longer jointly market this gas with its joint venture partner BHP Billiton Petroleum (Bass Strait) Pty Ltd (BHP).
The undertaking follows concerns expressed by the ACCC that, as a result of substantial changes in the wholesale gas market, the joint marketing arrangements were likely to have resulted in a substantial lessening of competition in contravention of section 45 of the Competition and Consumer Act 2010 (Cth), when given effect to by BHP and Esso between late 2013 and 2015.
Esso and the GBJV
Esso and its related bodies corporate carry on business in Australia including (among other things) the production and supply of wholesale natural gas in Eastern Australia.
The GBJV is a 50/50 joint venture between BHP and Esso for the production of crude oil and natural gas at the offshore fields in the Gippsland Basin in Victoria.
The GBJV is the largest producer of gas in the southern states.
The relevant conduct
The GBJV was established by BHP and Esso in 1964 and has been jointly marketing its gas to customers since it commenced production in 1969. On 11 August 2009, BHP and Esso formally documented their joint marketing arrangements by entering into a Memorandum of Understanding.
Under the joint marketing arrangements, BHP and Esso reached agreement with each other as to whom, when, at what price and on what other terms and conditions they would be willing to supply their respective shares of gas to customers.
In April 2016, the ACCC handed down its final report following its East Coast Gas Inquiry. The Inquiry found that the GBJV held significant market power as a result of the changed competitive dynamics in the southern states, and that the GBJV’s joint marketing arrangements warranted further consideration.
In a subsequent investigation, the ACCC raised concerns that the joint marketing arrangements were likely to have resulted in a substantial lessening of competition in the gas market for buyers in the southern states, when given effect to by BHP and Esso between late 2013 and 2015.
The enforceable undertaking
In accordance with the undertaking, Esso has committed to cease to jointly negotiate and enter into gas sales agreements for the supply of GBJV gas on and from 1 January 2019. In doing so, Esso has committed not to discuss with BHP the terms and conditions, including the price, on which it proposes to offer gas for supply from 1 January 2019.
Prior to 1 January 2019, Esso will transition from joint marketing to separate marketing. In the transition period, Esso will only enter into new gas sales agreements jointly with BHP for supply of gas up to the end of 31 December 2020, except where a longer term gas sales agreement is requested by a third party, and the ACCC agrees to the request.
BHP has provided an equivalent undertaking to the ACCC.