Page 20 - Gi flipbook February 2018

YOU BREXIT,

YOU BOUGHT IT

Implications of Brexit

for the UK gas industry

By Andrew goods and services, and a gradual
Whitehead, Head deregulation of the UK energy markets
of Energy at law in divergence from those in the EU.
firm Shakespeare Easier to foresee would be increased
volatility in the UK markets, caused not
Martineau only by the uncertainties created by a
hard Brexit, but also other global
ith Brexit factors such as the oil price and
negotiations now Chinese energy policy, to which the UK
through the initial would arguably be more vulnerable.
phase, it is timely to A strategic desire for the UK to
W consider what might reduce reliance on EU imports in this
be at stake for the UK gas industry in default scenario would be logical, and
the critical next phase of negotiations could conceivably see a reduction in
scheduled for 2018. gas flows to and from the EU
When contemplating how (including Ireland), as the UK sought
negotiations might play out, it is to increase LNG imports and pipeline
essential to reflect on the position for imports from Norway. Indeed, this something which has already driven
both sides if the talks fail. For Brexit, might suit the EU, which could decide the EU to devise measures to “Brexit-
the default setting sees the UK to impose costly regulation on EU-UK proof” the scheme.
become a third country on 30 March pipelines to push up prices in the UK, Anything which undermines the
2019, fall outside the remit of EU boosting EU competitiveness. integrity of the ETS would also affect
agencies and institutions, and needing Longer term, this drive by the UK operation of the UK’s carbon floor
to agree a tariff schedule with the to reduce reliance on EU gas flows price. This mechanism, which has
World Trade Organisation (WTO) to could see increased investment in the undoubtedly acted to stimulate gas
which trade with the EU would revert. UK Continental Shelf (UKCS), consumption for power generation
Of course, the UK is seeking to especially in the North Sea, bolstered – to displace coal – is a top-up on the
address this in part by the EU by improved financial incentives for ETS price, and is wholly dependent on
Withdrawal Bill. Among other things, operators. But there is only so much the ETS market fundamentals.
this will preserve some element of the UK government can do; the Finally, the vexed issue of
the status quo by plugging an overriding factor underpinning UKCS immigration – a key component of the
enormous legal vacuum through the investment would continue to be the first phase of talks. Oil and gas
repatriation of EU law at the point of global oil price. personnel work in a global
Brexit onto the UK statute book. In any event, domestic gas prices environment, and post-Brexit
However, steps taken by the UK will inevitably see upward pressures restrictions on employment of foreign
Parliament cannot deliver reciprocal if the sterling exchange rate remains nationals, and tariffs on imported
treatment of the UK within the EU, depressed, especially if LNG imports goods and services, could impact
where it will be a third country. Nor increase (e.g., from the US), and if significantly on the sector.
can they easily replace the many EU the UK markets detach from the Faced with these and other issues,
agencies and regulatory bodies, which EU markets. we must hope that UK negotiators
will no longer have remit in the UK, or Another factor inextricably linked to begin to address these issues at an
confer on replacement UK entities Brexit that will surely influence gas early stage in discussions.
reciprocal recognition within the EU. demand and prices is the UK’s When it comes to the energy sector,
For the energy sector, and gas in approach to the EU Emission Trading given the mutual benefits for both the
particular, it is especially difficult to Scheme (ETS). In a hard Brexit UK and the rest of the EU inherent in
envisage how a so-called hard Brexit scenario, UK industry would exit the the internal energy market (IEM),
might play out. scheme part-way through its current there are many arguing for a deal
Theoretically, we could see tariffs on phase, creating a big problem with which preserves as much of the status
gas imports and on other related surplus UK-held allowances, quo as possible. The IEM supports

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