MELBOURNE, April 13 (Reuters) - Some of Australia's biggestmanufacturers fear a planned $70 billion takeover of BG GroupPlc by Royal Dutch Shell could potentiallyworsen what they see as a lack of competition in the country'seastern gas market.
Manufacturing Australia, a lobby group whose members includeworld no.2 explosives maker Incitec Pivot Ltd and steelmaker Bluescope Steel Ltd, warned that gas usersseeking long term contracts were facing higher costs due to alimited number of suppliers.
The group has yet to decide whether to make a submission toa review of Shell's bid that will be carried out by Australia'scompetition watchdog.
"It's an issue that does raise some concern," ManufacturingAustralia executive director Ben Eade told Reuters. "It'scertainly not going to increase competition in a market where wethink what we need is more suppliers than less."
Concerns about soaring gas prices in eastern Australia havecome to a head with the start of exports from three liquefiednatural gas plants (LNG) plants in Queensland, including BG'sQueensland Curtis plant which opened late last year.
A report last year by Deloitte Access Economics found thatmanufacturing output could shrink by as much as A$120 billion ($91 billion) by 2021 due to rising gas prices as LNG exportsramped up.
Estimates of gas price rises have been based on assumptionsthat 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 agreat lack of competitive rivalry in the gas production market,"Eade said.
The Australian Competition and Consumer Commission said onMonday it would begin an inquiry into the competitiveness ofwholesale gas prices and the structure of the industry.
The inquiry, due to be completed by April 2016, will be runseparately and over a longer timeframe than the merger review, acommission spokeswoman said.
The review of the gas industry in eastern and southernAustralia comes amid concerns raised by big manufacturers thatsuppliers are hoarding gas for export, and offering only limitedamounts at high prices for domestic users.
"What we want to see is encouragement and incentives for asecond tier of gas producers to be able to enter the market,"Eade said.
Shell Chief Executive Ben van Beurden said last week the BGdeal would face anti-trust scrutiny but was unlikely to lead toforced asset sales. Shell and BG together own gas reserves ineastern Australia and offshore Western Australia as well asstakes in LNG plants on both sides of the country.
($1 = 1.3184 Australian dollars) (Reporting by Sonali Paul; Editing by Richard Pullin)