Shell lawyers challenge reasoning

By GEOFF SENESCALL

Royal Dutch Shell's lawyers filed a 36-page document with the Commerce Commission yesterday, defending the oil giant's proposed purchase of Fletcher Energy.

It has challenged the commission's reasoning for declining the initial application on the basis that the merged group would dominate the New Zealand gas market - both now and after 2009.

The document was backed by analysis of competition in the national LPG market from Alex Sundakov of the Institute of Economic Research.

The document supports Shell's second application, made last Friday, which proposed further divestments so the purchase could go ahead.

Among the issues raised by Shell's lawyers, from the Chapman Tripp law firm, is the commission's view on ease of entry into the gas market.

In rejecting the first application, the commission looked at potential competition arriving through the development of new fields within a two-year period to alleviate dominance concerns.

Chapman Tripp contends this is an "impossibly short-term approach when considering the time frame for new entry into either market [the current and post 2009]."

They also dismiss the suggestion that the Maui gas contracts - governing about 80 per cent of New Zealand's gas production - are not robust, saying that any authorisation to change them would need commission approval.

Furthermore, they say that Shell would not meddle with the gas supply coming out of Maui or effectively sabotage the infrastructure. Such possibilities are not realistic, the lawyers say.

As for competition, Chapman Tripp asks the commission not to write off the Rimu gasfield as it did in its report. It suggests that Rimu's owner-operator, Swift Energy, is confident that Rimu will produce significant quantities of gas.

Among the arguments raised by the law firm on the gas market after 2009 is the contention that there will be competition within the key Pohokura field, of which Shell has agreed to sell down to 48 per cent.

The lawyers dismiss the commission's contention that one of the joint venture partners, German company Preussag, will remain a passive player and suggest the commission speak directly to Preussag.

The Institute of Economic Research, looking at the LPG market, says there is no issue of dominance.

"Although the majority of LPG is produced from the Maui fields, the current contract between Liquigas and the Maui gas contracts provides significant constraint on the behaviour of the merged entity.

"As a legal matter there may exist some weaknesses in the Liquigas contract, but the economic incentives for the merged entity to challenge the contract are weak.

"Our analysis suggests that the combined constraint of Liquigas, NGC Todd and Rockgas and entry from Rimu would give rise to sufficient contervailing power that Shell/Fletcher Energy would not acquire or be likely to acquire dominance in the market for LPG production."