Oil and gas chief warns ‘Hard Brexit’ will double N. Sea trading costs to £1.1bn a year – never mind exodus of EU workers

The North Sea oil and gas industry has warned the prime minister that a ‘hard’ Brexit from the EU-bloc could double of cost of trading oil with former fellow-EU member states to more than £1 billion a year.

The Aberdeen-based Oil & Gas UK trade association recently commissioned research as to the possible impact of Brexit on the oil and gas industry.

This also provided an assessment of the potential cost of trade for N. Sea oil sector and illustrates where the sector’s workforce comes from.

At present, around £73 billion worth of oil and gas-related trade (fuel and non-fuel) flows between the UK and the rest of the world each year.

Under the current ‘status-quo’ scenario with the UK as part of the EU, the total cost of this trade in goods is around £600 million per annum (less than 2% of the total value of trade that is subject to tariffs).

But under a worst-case <’hard Brexit’. scenario where the UK reverts to world trade rules with the EU and the rest of the world, the likely cost of trade will almost double to around £1.1 billion per annum; assuming trading behaviours remain unchanged.

In a ‘third way’ option, if the UK can negotiate minimal tariffs with the EU and improved tariffs with the rest of the world, the total cost of trade could fall by around £100 million per annum to £500 million.

A ‘hard Brexit’ would also be detrimental to work force recruitment and skills-retention in the North Sea.

Of those directly employed by the oil and gas industry in the UK, 90% are UK national, 5% are EU workers and 5% are non-EU.

Around 70% of the EU workers in the oil and gas industry are skilled, with one in two holding managerial roles.

Deirdre Michie, Chief Executive, UKOG, warned: “The highly-skilled roles filled by EU workers are often critical for projects. Therefore we urge Government to consider these roles when developing post Brexit immigration policy.

“We are becoming a more globally competitive industry, but we continue to be very sensitive to any additional burdens either in relation to cost, or restrictions on the movement of key personnel required for critical operations.

The Government should also bear in mind that highly-skilled workers from the EU and the outside world will remain vital for our <N. Sea> industry.

“Therefore, access to a globally mobile and skilled workforce must remain a priority when designing UK immigration policy.”

“This will be crucial to avoid putting the UK industry at a competitive disadvantage with other global oil and gas provinces and to show that the UK truly is open for business.

“Given the above and in order to minimise the Brexit cost burden or indeed secure advantageous trading conditions, we recommend the UK Government prioritises the following aims during the Brexit negotiations:

  • ‘Frictionless’ access to markets and labour
  • Maintaining a strong voice in Europe, and
  • Protecting energy trading and the internal energy market

There are other specific EU policy issues which OGUK has identified as critical to the oil and gas industry during Brexit.

They include the UK’s future relationship with the EU Emissions Trading System (ETS), particularly the potential cliff edge between the UK leaving the EU in 2019 and the end of Phase III in 2020, which requires immediate attention and discussion.

There are also EU policy issues surrounding compliance with REACH regulations; compliance with Product Safety Directives; compliance with the Classification, Labelling and Packaging of substances and mixtures (CLP) regulations; transboundary shipment of waste; continued protection for marine protected areas and reporting of progress against environmental objectives, limits or targets to the European Commission.

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