The impact of Brexit on the oil and gas industry

Will a no-deal outcome put more pressure on oil and gas in the UK?




Brexit and the oil and gas industry

Despite remaining an outside possibility, an outcome in which the UK separates from the EU without a deal or agreement still causes some degree of worry. With negotiations continuing to progress in the face of various setbacks, both parties seem committed to securing a mutually-beneficial arrangement. But what are the potential impacts on the oil and gas industry if a no-deal Brexit does occur?

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For the last couple of years, the government has been locked into negotiations with the ultimate goal of being ready from day 1 when March 2019 arrives. As the date approaches, preparations for all outcomes have intensified, and the work required to keep all plans up-to-date has increased. The Department for Exiting the European Union has produced a lengthy framing notice which provides advice to businesses to assist them in achieving a smooth transition regardless of the deal outcome.

Oil and gas: deal or no deal

The government has taken steps to provide notices covering a number of UK industries, including oil and gas. The plainly-titled ‘Running an oil or gas business if there’s no Brexit deal’ notice covers issues of oil and gas licensing, environmental protection, and oil stocking. This document also includes an in-depth list of sources and further legislation that may be of interest to worried oil company executives looking for some reassurance around Brexit.

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The Brexit debate itself has become somewhat mired in discussions relating to soft and hard exits, divorce settlements, the new “blind Brexit” idea, and deal or no deal scenarios. What this may be hiding is a very real possibility that the perceived confusion the press loves to report may actually result in a no-deal Brexit. The Governor of the Bank of England, Mark Carney, told the BBC that “the possibility of a no-deal Brexit is uncomfortably high and highly undesirable” and warned of major disruptions to trade. Given the ostensibly apolitical position of the Bank of England, these are strong words indeed.

The impact on oil and gas companies

With warnings about trade disruptions from the Bank of England, and rapid preparations for the eventuality of a deal failing to materialize, it seems like the oil and gas industry may be seriously affected by the risk of a no-deal Brexit. So, what will happen? Spoiler alert – nobody is quite sure. Despite setbacks and restructuring in recent years, and a complete downturn in investments made, the oil and gas industry has proved hardy and capable of renewed growth and expansion.

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Whilst major players such as PwC are anticipating a lack of supply, it is expected that the industry is on track for an increase in production, and a stable level of imports – the majority of which will continue to arrive from non-EU countries. Whilst the impact of Brexit on oil and gas companies will be lessened by their strong commercial relationship with companies from elsewhere in the world, the UK’s oil and gas industry makes up a vast proportion of EU oil and gas trade including an outright majority of oil production.

It is likely that the UK’s oil and gas industry’s strong positioning will prove a sufficient bargaining chip to avoid major problems with its future independent trade with the EU. Neither should tax positioning change, given that the UK Government has always retained control over its energy policy and its reserves of oil and gas.

The biggest impact on oil and gas?

Perhaps the biggest risk is not a legislative one, but rather a bureaucratic stickiness that may result in delays along supply chains and the subsequent increased costs. Tariffs may be imposed, and supply chains may be diverted or altered – increasing risk significantly in the short- to medium-term. There is also a risk that staffing may become difficult when new immigration laws are implemented, with roughly five to seven per cent of the workforce originating from EU member states.

Quite what we will be facing in less than 200 days' time, nobody is sure.

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