Oil titans Royal Dutch Shell (NYSE: RDS.A) and BP (NYSE: BP) are among the world’s biggest oil producers being investigated by European authorities on suspicion of fixing the price of international oil products. The investigation suggests price collusion took place in a similar vein to the European Libor scandal where banks were found to have manipulated the interest rates they were reporting. If true, the impact likely stretched to all corners of the globe.
According to Bloomberg, the alleged price fixing revolves around the publisher of benchmark oil prices, a company called Platts. Unlike trades on the Australian stock exchange, which are publically visible, oil trades are reported to Platts after the transaction has taken place. The European Commission is concerned that oil companies “may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products.” The published prices are used as the basis for setting the current oil price.
BP and Shell have a number of activities in Australia. BP is currently applying for approval for a $600 million exploration operation to search the Great Australian Bight, while Shell has invested billions into various gas and oil production operations throughout Australia.
One of Shell’s key partners in many of these operations is Woodside Petroleum (AS: WPL). Woodside is both operator and joint venture partner in the $27 billion North Wes Shelf project, which also includes BHP Billiton (ASX: BHP). Both Woodside and BHP are also partners in the Browse LNG project which Woodside operates, while Woodside and Shell have also teamed up for the Sunrise project in addition to various other gas exploration undertakings.
The projects are largely focused on natural gas and LNG production, the price of which is tied to the price of crude oil. As an oil and gas producer Woodside may have benefited if the international price was set artificially higher, and the company’s close ties to Shell may place the company in the spotlight if the investigation is broadened.
The impact of any collusion on the global oil price may also have had an impact on other Australian producers like Santos (ASX: STO) and Oil Search (ASX: OSH), as well as negative impacts on countless business and consumers the world over if they were paying artificially inflated prices for gas and oil.
It’s understandable that oil companies want to squeeze every dollar of return from the massive investments they make in exploration and production projects. However price collusion crosses both ethical and legal lines. Time will tell if Australia’s oil and gas producers get caught up in the scandal as the investigations continue.
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