How will Brexit Impact on the Oil and Gas Sector in the UK?

Oil prices actually dropped to their lowest level in two weeks earlier this week, as worries over a further decline in demand came to the forefront. OPEC is looking to counter this by extending its worldwide production cuts, but issues such as Brexit and economic uncertainty in China continue to weigh heavily on the market.

This is particularly concerning for the UK oil and gas industry, which faces an uncertain future in the current economic climate. But how will Brexit impact on this sector, whether the UK secures a withdrawal deal of exits the EU without one.

What Happens in the Event of a Deal and a Managed Exit?

At present, the UK is established as the largest producer of offshore gas and oil in the EU, and a result of this the region plays a seminal role in determining the European Union's regulatory approach in this sector.

This is why a managed and orderly exit from the EU is important, as this will enable both parties to protect their interests and maintain a sense of harmony as they alter the landscape of their future relationship.

From a UK perspective, this also provides a safeguard for the UK against future regulatory changes and directive issued by the EU, which could potentially impact negatively on the nation's oil and gas sector.

The precise nature of this safeguard has yet to be fully understood, but any form of official withdrawal agreement is likely to include a mechanism that essentially supports the UKCS in relation to future EU rules.

A withdrawal agreement would also help to minimise the level of friction between the UK and EU, as whilst the former's oil and gas sector currently boasts a global reach it also maintains a valuable supply chain that's heavily dependent on goods and services sourced from Europe.

A deal would therefore deliver certainty and peace of mind to the marketplace, by ensuring that these goods and services can move as seamlessly as possible across international borders.

What About a No-deal Brexit?

Conversely, a no-deal Brexit will cause widespread uncertainty and chaos in the sector, whilst undermining the future growth and competitiveness of the UK's oil and gas market.

The issue of competitiveness of our oil and gas market is particularly interesting in the wake of a no-deal Brexit, as British suppliers may struggle to maintain commercial and regulatory integrity in any internal energy market spanning the UK and the EU.

This, coupled with subsequent disruption to the UK's supply chain, could diminish the region's ability to compete on the global stage and set the market back years.

Similarly, leaving the EU without a deal could also threaten the eligibility of UK firms to operate in Europe. Individual licenses could certainly come under scrutiny post-Brexit, as meeting the future energy needs in the region whilst also tackling climate change is the number one requirement when engaging with the EU.

Without a robust regulatory outlook or eco-friendly approach, the UK may lose a significant share of its market should it exit the EU without a withdrawal agreement.