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By Sonali Paul
MELBOURNE, April 8 (Reuters) - Tightening gas supplies ineastern Australia and a battle for gas to supply three liquefiednatural gas plants will figure largely in watchdogs' review ofRoyal Dutch Shell's $70 billion takeover of BG Group.
The deal may help break a deadlock over coal seam gas ownedby Shell's Arrow Energy in Australia, which has been stuck inthe ground after it scrapped plans to build an LNG plant inQueensland and entered talks to supply other LNG plants there.
Shell hopes Australia's competition and foreign takeoverswatchdogs will take that into account when weighing thepotential benefits to the economy and consumers in the easternstates, whose gas costs have soared as supplies have beendiverted to LNG exports.
"There's a strong, compelling industrial logic for what nowneeds to happen in South Queensland. I'm sure that theAustralian government and the regulators will pay attention toit as well," Shell CEO Ben van Beurden told reporters onWednesday.
"So we want to be working with the authorities in Australiato figure out what is right for the enlarged company and alsofor the Australian government and the Australian consumer. Butyou're right, there's work to be done in that area."
The deal needs to be approved by the Australian Competitionand Consumer Commission and the Foreign Investment Review Boardwhich makes a recommendation to Treasurer Joe Hockey.
Hockey's office declined to give a view on the bid. Thecompetition commission said it was likely to conduct a publicreview once it receives a submission from Shell.
The deal is expected to complicate life for Australia'sSantos Ltd. It is set to start exporting LNG this yearfrom its Gladstone LNG plant, which neighbours BG's QueenslandCurtis LNG plant and opened late last year.
Arrow has been in drawn-out talks to sell gas to Santos'Gladstone LNG (GLNG), which would supplement Santos' own coalseam gas to meet its export commitments over the next 20 years.
At the very least, Shell's move on BG is likely to putnegotiations on hold. At worst for Santos, the Anglo-Dutch giantis likely to want to put Arrow's gas into BG's LNG plant insteadof into GLNG, analysts said.
"It could be a negative for GLNG. The risk for GLNG is thateven if there might be an opportunity to buy gas from Arrow,it's unlikely to happen soon," said UBS analyst Nik Burns.
Arrow Energy spokesman said the company had been in talkswith the owners of LNG projects, but declined to comment on whoit had been talking to or what impact a Shell takeover of BGwould have on those talks.
Santos declined to comment on the deal.
While analysts say Santos needs to fill a gas supply gap, ithas repeatedly said it has 9,000 petajoules of its own reservesand resources to fill its plant over 20 years.
"Any suggestion that that's not available to us, I think thefacts just don't support it at this stage," Santos CEO DavidKnox said in February.
But at the same time, he said if it were cheaper to line upthird party gas supply instead of spending money developing itsown gas resources, "then absolutely we'll entertain it".
China's anti-trust authorities will also be interested.CNOOC Ltd has a stake in BG's Queensland Curtis plantand buys its gas; PetroChina is Shell's partner inArrow Energy; and Sinopec owns a stake in anotherrival, the Australia Pacific LNG project, led by ConocoPhillips and Origin Energy. (Reporting by Sonali Paul; Editing by Ruth Pitchford)
