September 2019, Vol. 246, No. 9

Features

Impending Impact of Brexit on the Oil and Gas Industry

 

The impact Brexit will have on the oil and gas industry will be influenced by a couple of factors, one of which will affect the majority of businesses in the United Kingdom:  Will the country leaves the European Union (EU) with a deal in place.

With the deadline (the most recently decided-upon deadline at least) now less than 90 days away, the likelihood of a no-deal Brexit is looking increasingly likely. And the effects could be hugely problematic.

Without a deal, transport between the United Kingdom and EU countries could face restrictions on things like driver’s licenses and work permits, and there won’t be a transition period to allow those whose employment situation will be affected to deal with the changes.

So, because the U.K. has been such a significant part of the EU in terms of offering work opportunities to those from other countries, there is going to be noticeable shifts in a lot of different industries. What does this mean for the oil and gas industry?

Well, the EU itself may actually be more likely to suffer. The oil and gas sector is globally a strong, growing force and in the U.K. it’s no different, with a lot of imports coming from countries that are not part of the EU.

This is encouraging for the U.K., but it’s not the only factor in play. For one thing, the workforce could potentially suffer, because 5% of oil and gas workers within the U.K. come from countries that are in the EU.

These workers probably aren’t likely to lose their jobs immediately, but without a deal, the likelihood is that there will be an increase in labor costs, which could discourage U.K. companies from hiring employees from EU nations.

For the U.K., this would lead to either relying on a workforce that comes entirely from within their own countries, or hiring employees from non-EU countries, which would likely cost even more. 

As for EU-based oil and gas engineers, the employment options are pretty limited already. With most of the primary European oil companies operating in the North Sea, there are few countries on the continent of Europe that have a booming industry.

Norway and the U.K. are the strongest, right now. With Norway not being in the EU and the U.K. now on its way out, this doesn’t leave a whole lot of appealing options for the engineers that are EU-based. Unless of course there is a deal in place that provides the necessary regulations to ensure that workers can continue to be a part of the industry in the same way that they are right now. 

Transport is another issue that needs to be considered. In Section 3.4 of the “Oil and Gas U.K. Economic Report, 2018,” there is an example given of the relationship between the U.K. and Bulgaria. 

Bulgaria joined the EU in 2007, in part because if there was goods being transported from Bulgaria to the U.K. before that date, delays could take up to a week because border crossing guidelines were more stringent. Delays such as this could affect equipment being transported from EU countries to the U.K. oil and gas projects. 

Such hold ups would obviously slow progress and increase costs. A no-deal Brexit would see transport slowed down, and that would be a huge hindrance for an industry that has a large reliance on equipment and materials. 

Something else that is not often talked about is the value of the pound.

Ever since the initial Brexit referendum back in mid-2016, the value of the pound has had a rocky trajectory. It saw a decrease initially, indicating that the idea of Brexit in itself doesn’t incite a favorable outcome.

As time passed, the value increased during periods when it looked like the U.K. leave with a deal or at least with some sanctions in place to ease the transition period. Needless to say, this pattern has led to inconsistency.

And in line with this pattern, the value of the pound could be low in October, if things keep going the way they’re going. 

While a no-deal Brexit, sounds like a bad thing for the U.K.’s oil and gas industry, but that’s not necessarily the case. U.K. assets will become cheaper, and this may lead to more international companies looking to invest in oil and gas in the U.K. 

So, while a no-deal Brexit may slow down transport and lead to difficulties in finding skilled workers for the industry, it could present certain financial advantages.

In addition, little change is expected in regard to hydrocarbon licensing and environmental issues. The U.K. government confirmed it will remain a member of the International Energy Agency (IEA), and as such, will continue to meet the stocking obligations outlined by this organization.

Should it occur that the U.K. does leave Europe without a deal, the issues of transport and workforce will require the U.K. to adapt, which might be less difficult than you might think.

While significant resources and many workers coming from EU countries, oil and gas is global. The industry is changing, too. A variety of technologies that have been around for a long time are becoming more prevalent in global oil production, including in-situ thermal technology. These may be fresh avenues that U.K. companies could develop to entice further investment. 

Each of these issues may end up not being an issue after all. There could already be ways to deal with such problems ready to go when the time comes. But we won’t know for sure what the effects will be until the final deadline for Brexit rolls around later this year. P&GJ