ARTICLESPotential Impacts of BREXIT on UK Oil and Gas

Potential Impacts of BREXIT on UK Oil and Gas

By Tom Pakenham-Walsh

What is the effect of Brexit on the UK’s oil and gas industry – team ROCKSOLVE reflects…

With a voting date scheduled for 23/06/2016, Brexit talk unsurprisingly headlines our industry airwaves. 

Rocksolve HQ questioned ‘in the event of a No vote, what would the effect be on the UK’s beleaguered oil and gas industry if Britons were to back leaving the European Union in a referendum? 

Our findings proved challenging…

Barriers to Trade

There is no clear indication of what sort of movement + trade deals a non-EU UK would be able to establish with the European Union.

One prospect that will not appeal to multinational oil and gas companies is a possible loss of the free travel arrangement between the EU/UK.

Many UK workers who are employed by European oil companies work in EU countries and vice versa.  After a No vote, the likelihood of these workers gaining non-EU citizen status could increase bureaucracy and therefore costs for their employers - an outcome that the oil and gas industry would like to avoid (especially as companies are trying to minimise expenses to reduce operating costs). Chief Executive Ben Van Beurden, highlighted this issue by stating that an increase in movement and trade barriers generated by Brexit would negatively impact Shell.

Further down the line, many EU companies may favour employing workers from the EU over the UK - possibly confining UK workers to the super-mature North Sea industry. However, a move to closer integration with the resource-rich commonwealth countries, such as Canada, Australia and Nigeria could offer an outlet of opportunity for the highly trained UK oil and gas workforce to take their expertise to foreign locations and to form successful business partnerships. Many commonwealth countries such as India, are primed for growth in the oil and gas industry compared to the more mature UK, EU & Norwegian sectors.

Another outcome could be the adoption of the Norwegian model, with access to the single market gained from membership of the EFTA. However, the membership to the single market without a say in its running is likely to be unappealing to a populace that has voted for an exit.

A Scottish Exit?

The removal of the UK from the EU, whilst Scotland votes to remain, has led to talk of a second Scottish Independence referendum. For the oil and gas industry the heavy uncertainties associated with another referendum would not help – particularly as the oil price crash has massively affected confidence in the UK oil and gas industry. Also, the insecurity generated by a second referendum in a low oil price environment may result in companies delaying/cancelling projects until any outcome is known, adding to the pressures faced by the industry currently. 

Loss of Science funding

Science funding in the UK is below the European average. Being part of the EU enables the UK to receive support via funding into research such as Horizon 2020 effectively allowing the UK to ‘punch above its weight’ -  contributing to large scientific projects that compete in scale with those conducted in the USA and China.

The oil and gas industry benefitted massively from working closely with research institutions in both the UK and EU. From access to cutting edge research, to the excellent levels of education given to future oil and gas geoscientists and engineers in universities. It has allowed companies operating in the North Sea to maintain their competitiveness over the years and enhanced their reputations as world leaders in new technology adaptation.

With geology being a fundamentally borderless science, on balance it seems that the oil and gas industry in the UK is well-served by the current barrier-free arrangement between the UK and the EU and several companies have expressed their desire to see the status quo remain. 
It is worth noting though, that the potential value gained from closer cooperation with resource rich commonwealth countries should not be overlooked.