Opinion

Will Brexit affect the UK oil industry?

Posted by Scott Johnson

24-Jul-2019


This week the UK took one step closer to Brexit with the appointment of Boris Johnson as prime minister. While most in the oil and gas industry remain calm about Brexit, some investors involved in activities such as logistics and technology like Tom Chapman, Greg Herrera and Susan McDonald, must have some concerns.

Although no one is really sure what might happen to the industry, Brexit could still jump up and bite us, and hard. So now is a good time to take a look at some of the Brexit challenges we will undoubtedly face.

Access to oil workers

It is estimated that around 5% of oil and gas workers in the UK are EU nationals. There are lingering fears that it's going to be a lot harder to recruit talent from Europe post-Brexit not just within the sector but in the supply chain too.

Although the government has guaranteed the right to remain for many EU nations, and they will be classed as skilled workers needed for the UK, if we leave without a deal on 31st October, their longer-term fate could be uncertain. It's likely, if nothing else, that at least some may decide to leave UK companies to avoid becoming entangled in any new work-permit schemes.

In fact, it is this spectre of increased paperwork, and possible increased costs, which is giving oil and gas companies a headache right now. If we crash out with no deal, there are bound to be a whole new set of hoops to jump through to recruit and retain talent in the sector.

No-deal tariffs

Oil and gas executives remain largely unphased by the thought of a no-deal Brexit, or in fact any kind of Brexit. At the launch of EY's oilfield services report earlier this year just 4% of attendees said Brexit was the biggest growth barrier. This is understandable in such a globally focused industry; and a sector used to facing and overcoming big, complex challenges.

However, there are some bumps in the road, and they could be fairly large. In a no-deal scenario, tariffs – and the uncertainty surrounding them – would undoubtedly be an issue. In a report published in 2017, the industry body Oil & Gas UK, reported that more than £60 billion of trade between the UK and the rest of the world is in goods subject to tariffs. The EU tariffs on this figure is around £600 million annually. According to PWC, it's possible that this could rise by around £500m, giving a likely cost of trade of £1.1 billion.

A no-deal scenario might sound like a nightmare for tariffs. But the government – and indeed any new Labour government if a general election is held – is keenly aware of the need for continuity in the oil and gas sector. It's one of the UK's foremost industries, contributing more than £1bn in taxes to the exchequer, and will doubtless receive priority treatment when it comes to tariff agreements with both the EU, and countries outside the EU.

Oil & gas regulation

There is one area that could cause big problems for the industry, and that's increased regulation, not necessarily from the UK side but coming out of an EU that no longer has a UK voice at the table.

The UK government has made some reassuring statements about amending legislation to ensure continuity in the sector but the EU may well see Brexit, especially a no-deal one, as an opportunity to discourage reliance upon UK-produced oil and gas.

In this scenario, the sector could face real challenges. Though it may seem unlikely when it comes to an international industry like oil, I'm still of the mind that a disorderly no-deal Brexit could encourage EU legislators to put barriers in our way.

To date, we've seen only the public face of both sides of Brexit, but with a new prime minister determined to take the UK out come what may, I think we could see a new, less-accommodating stance in the EU; and if we do, the oil industry is a very big and obvious target.

Brexit is coming, I think we can all now agree on that. What we can't agree on is how it will impact our industry and the people who work in it long term. It's an opportunity for growth but it's also a very big threat. Though we can hope that things will remain largely unchanged, and that both sides will act sensibly and pragmatically, I suspect that tensions are about to rise dramatically.



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