Brexit likely to be negative for UK oil and gas, Offshore Tech survey finds
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Brexit likely to be negative for UK oil and gas, Offshore Tech survey finds

By Yoana Cholteeva 26 Mar 2020

With the UK now having entered a 12-month transition period out of the European Union, we asked the readers of Offshore Technology what impact Britain’s departure will have on the UK offshore industry.

Brexit likely to be negative for UK oil and gas, Offshore Tech survey finds
As a member of the EU, the UK is currently subject to reduced tariff costs on any traded goods, stocks, and services. Source: Christoph Scholz

From 1,536 votes, our survey results found out that 45% think the outcomes will be negative, 36% have said they will be positive and 19% remained neutral.

Increasing export and import tariffs

As a member of the EU, the UK is currently subject to reduced tariff costs on any traded goods, stocks, and services. Now with the cost of these tariffs due to change post-Brexit, oil and gas tariffs for UK operators might rise to unprecedented heights.

In May 2017, analysis from the Oil and Gas UK (OGUK), the trade association, predicted that after Brexit the costs of trading £73bn worth of oil and gas annually could jump from £600m a year now to £1.1bn in the worst-case scenario.

Alternatively, if the UK negotiates more favourable tariffs with countries outside of the EU, the cost of trade could fall to £500m, OGUK also said.

Regarding the trade model Britain would have to follow after Brexit, the country will either negotiate individual terms or will follow models established by other European countries not part of the EU.

For example, the “Norway model” would allow the UK to maintain tariff-free access to the single market, but it would require compliance with the “four freedoms”- freedom of movement, goods, people, services, and capital over borders. This strategy would also not permit Britain to negotiate trade deals on its own terms with the rest of the world.

Another option could be the “Switzerland model”, according to which the country does not have to incur EU tariffs in the future and is free to negotiate trade deals with the rest of the world, but it has to allow free movement of people and make some contributions to the EU budget.

Workforce restrictions

A PWC report which found that 5% of skilled workers of the total oil and gas workforce and 7% of the offshore workforce come from EU countries, raises questions over Britain’s future access to EU talent in the field.

It’s not only the physical restriction for EU workers to stay in the UK that might get in the way, but the possibility that they may leave UK companies to avoid being entangled in future work-permit schemes, more paperwork, and increased costs.

In order to prevent disruption, in its 2018 economic report, 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.”

The organisation also pointed out that delays in access to skilled resources from EU countries can lead to project delays or issues with projects managed from outside of the UK.

An opportunity for operators from outside the EU

On the other hand, there’s a possibility that the departure of Britain from the EU can open new opportunities for non-European countries.

With its big exploration reserves potential, the UK continental shelf (UKCS) continues to be a site of great interest for non-EU offshore operators and work in the region a number of exploration and production projects led by companies such as US Apache, ConocoPhillips and Chevron, French Total, Chinese CNOOC, etc.

In December 2018 Norwegian oil operator Equinor announced its commitment to keep working on oil and gas explorations on UKCS post-Brexit with the company’s vice-president for strategy Al Cook saying in a statement that as the North Sea is a mature and dying oil area and Equinor is determined to “make the most out of UK’s common geology with Norway”.

In addition, a 2019 government report announced an increased activity in the area with 20 new projects consented in 2018 (7 in 2017) which are expected to deliver some £5bn of NPV (under central price assumptions).

This recent revival of the continental shelf has sparked hopes that Brexit would not intervene with foreign operators looking to drill in the area, but the changes following Britain’s departure will open the door for more profitable future explorations.