The UK’s eventual departure from the European Union has created much uncertainty in the global economic landscape, but what could it mean for the oil and gas industry? Offshore Technology explores the potential impact of Brexit on the UK’s offshore market.
What are the potential effects of Brexit on oil and gas?
In August 2018, UK business secretary Greg Clark warned that a no-deal Brexit could be “hugely damaging” to oilfield services companies operating in the north-east, with the region’s strong international focus being at risk if the UK leaves the EU.
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The UK oil and gas industry could also experience difficulties in accessing skilled workers as 5% of the total oil and gas workforce and 7% of the offshore workforce come from EU countries.
In its 2018 economic report, oil and gas trade association Oil & Gas UK (OGUK) said: “It is vital that arrangements are in place between the UK and EU to allow the continued frictionless movement of people, ensure that there is no increase in labour costs and to mitigate concerns around potential skills shortages.
“Delays in access to skilled resources from EU countries have the potential to lead to project delays, or to projects being managed from outside of the UK and in some instances could lead to production having to be shut in.”
Depending on the deal the UK eventually strikes to exit the EU, tariffs on UK oil and gas trading could change significantly. OGUK’s analysis modelled two potential Brexit scenarios: a scenario where the UK can negotiate international trade deals with the potential for trading costs to fall by around £100m per annum, or a “no deal” reversion to World Trade Organisation rules which could increase the cost of trading by £500m per annum.
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By GlobalDataBrexit impact on oil and gas sector: How has the industry reacted?
Despite the potential negative impacts of Brexit on the oil and gas industry, many companies and institutions are optimistic about the oil and gas industry post-Brexit.
In December 2018 Norwegian oil company Equinor announced its commitment to developing oil and gas projects on the UK Continental Shelf (UKCS) despite Brexit, with plans to drill three wells in the shelf over 2019.
Equinor executive vice-president for strategy Al Cook said: “We are putting more investments into the UK despite Brexit, the perception of North Sea as being very mature and dying and oil price gyrations. We want to make the most out of UK’s common geology with Norway.”
The UKCS is a site of great interest for oil and gas companies despite Brexit, with a number of exploration, production and decommissioning projects being planned in the area in recent years.
The UK government’s control of its energy policy and the UK oil and gas market is also expected to mitigate some of Brexit’s impact. In a statement released in September 2018, the UK government said: “The established regime for hydrocarbon licensing and environmental issues will continue to operate…UK and EU businesses will not be required to take any action.
“The government will amend the relevant legislation to ensure broad continuity. The legislative changes will have no impact on energy sector businesses, whose residual obligations under the legislation covered will remain unaltered.”
While Brexit is a source of great uncertainty for a number of markets and has caused oil prices to fluctuate in the short-term, the UK’s global reach and in the oil and gas industry means the sector as a whole is confident in the post-Brexit UK.
Westwood Global Energy Group CEO Andrew Reid said: “The day-to-day operations of a global oil and gas business are quite complex and challenging, so Brexit does not scare oil and gas as much as other industries.”
