Brexit. A contentious issue if ever there was one. It’s something that everyone has an opinion about – you’d be hard pressed to find anyone sitting on the fence when it comes to our relationship with the EU.
We’ve written on these pages before about the possible ramifications that Brexit could have on the contracting community, and it hasn’t been altogether positive. It’s important to note, however, that no one truly knows what the future holds. It’s very much a leap into the unknown – we can predict and prevaricate all we like, but the situation will only become clearer once we take that final step.
But not every story around contracting and Brexit is a negative one. Our interest was piqued by an article we read recently over at Platts. The blog post lists a series of reasons as to why a no deal Brexit is no bad thing for North Sea oil and the UK energy sector more broadly.
Stating that “the nation’s vital oil, gas and electricity industries can continue to prosper even in the hardest of hard Brexit scenarios” seems like quite a bold prediction when read alone, but with the evidence given the argument becomes a lot more interesting. Here are the main reasons Andrew Critchlow, the author of the post, gives:
- Losing jurisdiction over Britain’s oil reserves in the North Sea is theoretically bad for Europe because it pushes up the bloc’s dependence on imported crude from outside the region. The UK and non-EU member Norway currently account for 84% of all European production, according to the BP Statistical Review of energy
- A weak pound would not seriously threaten such a strategically important industry as it uses the US dollar as its global currency de jure. As Critchlow notes, “Labour costs – among the offshore sector’s biggest overheads in the North Sea – should be kept in check by sterling’s depreciation against the greenback.”
- In terms of licensing and operating regulations on the North Sea, even the most brutal outcome to Britain’s protracted talks with Brussels would have little impact. “In the event of a ‘no deal’ outcome, the licensing and environmental regime relevant to upstream industry in the UK will remain broadly the same and that no action needs to be taken by UK or EU companies,” said Julia Derrick, oil and gas partner at law firm Ashurst
That being said, we must not disregard some of the inevitable negative consequences of a no deal Brexit. There will certainly be more red tape for those companies with a hand in the UK energy sector, not to mention an aggregation of additional costs, administration, and complexity across a number of areas.
These companies are used to the volatility of fickle oil markets, however, so the above reasons are likely to be more of a nuisance than a major problem.
It should be noted that a no deal and reversion to World Trade Organisation rules could add £500 million in trading costs (according to industry group Oil & Gas UK), but again these additional costs seem less relevant when we look at the bigger picture. The UK energy sector is expected to generate over $920 billion of revenue by 2035, making that figure look almost irrelevant.
In truth, it is likely that even the most ardent Brexiteers would admit that the UK will suffer economically in some respect after leaving the EU. It is sensible, too, to prepare for the worst-case scenario and be ready for all eventualities. But maybe, just maybe, it won’t be quite as bad as many of us expect.
Are you a contractor working in the UK energy sector? We’ve got the perfect package of insurance cover for you. If you’d like to know more, just give one of our team a call on 01242 808740.