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How might Brexit affect the oil and gas industry?

Information in a study commissioned by Oil & Gas UK, which looks at the possible cost of trade for the sector and illustrates where the UK sector‘s workforce comes from, has been highlighted in a letter to the Prime Minister which focusses on the potential impact of Brexit on the energy industry. The letter was sent to the Prime Minister on Monday.

On trade costs, the data shows:

  • Around £73 billion worth of oil and gas related trade (fuel and non-fuel) flows between the UK and the rest of world
  • Approximately £61 billion of this is related to traded goods, which may be subject to tariffs (services account for the remaining £12 billion)
  • 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 percent of the total value of trade subject to tariffs)
  • Under a worst-case scenario where the UK reverts to WTO 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
  • 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

On labour movement, the data shows:

  • Of those directly employed by the oil and gas industry in the UK, 90 percent are UK national, 5 percent are EU workers from countries other than the UK and 5 percent are non-EU
  • Around 70 percent of the EU workers in the industry are skilled, with one in two holding managerial roles
  • Oil & Gas UK understands that these skilled roles filled by EU workers are often critical for projects and asks Government to consider these posts when developing domestic immigration policy.

To minimise any Brexit cost burden and to secure beneficial trading conditions, Oil & Gas UK recommends the UK Government prioritises the following during negotiations:

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

Deirdre Michie, Chief Executive of Oil & Gas UK, said: “Oil & Gas UK is an apolitical organisation representing a large and diverse membership where there will be a variety of views. While the trade body can’t take a position on Brexit, we commissioned the research because we need to understand the possible impact on our industry - and the possible opportunities - from exiting the EU.

“We also identified other EU policy issues as critical to the oil and gas industry and will require negotiation with European counterparts, as well as discussions at the domestic level between Government, regulators and industry during the Brexit process. 

“During the global industry downturn, our industry has continued to focus on increasing its production efficiency, and on its unit operating costs which have improved by almost 50 percent.

“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. 

“There are still up to 20 billion barrels of oil and gas to recover from the UKCS and, if properly supported, our already world-class supply chain could double its turnover by 2035.

“Oil & Gas UK would welcome discussions with Government officials to outline industry’s concerns and opportunities and help identify a path forward during Brexit negotiations.

“Our request of Government is that any change, whether domestic or European, is managed in a manner that minimises risk to the oil and gas industry and provides predictability and clarity wherever possible, through constructive dialogue and consultation.”

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