Shell launches bid to acquire Australia’s ERM Power

Shell has reportedly made a $419mn (A$617mn) takeover offer for ERM Power, Australia’s second largest electricity supplier. Already an experienced power operator and trader with operations in the US and most European markets, Shell’s proposed acquisition is part of an expansion push into other global power markets that present opportunities. Earlier this year it began trading and selling electricity to businesses in Japan.

Commenting on the news, Wood Mackenzie Research Director Nicholas Browne says: ‘ERM Power looks to have been a good fit for Shell for several reasons. Firstly, it has a gas-only fleet, whereas most other Australian utilities own and operate coal-fired power. Secondly, it is relatively small scale so it will not raise any anti-competitive concerns compared to if Shell acquired a larger utility. Thirdly, it only sells to business customers. As such, it will likely avoid the political spotlight under which the retail utilities have been operating recently given blackouts and rising prices.’

‘Shell will likely supply ERM Power’s Oakey power station in Queensland with gas from its Queensland Curtis LNG project. Shell does not have dedicated international LNG contracts from this project, providing it with the flexibility to redirect gas to the domestic market. Furthermore, global LNG prices are currently depressed and are expected to remain so for one to two years. The acquisition provides Shell with an opportunity to arbitrage between domestic and international markets. Domestic prices are relatively attractive currently. The massive scale of the Queensland Curtis resource means that Shell can significantly increase its gas supply to ERM Power in future, particularly if its pipeline of potential new power projects develop further.’