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Brexit: What Are The Flashpoints for the European Gas Markets?

Posted by on 22 July 2016
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With the shock result of the EU referendum, those in the energy sector, along with everyone else, are still digesting what this means for their industry. Among the topics under consideration are what the new energy ties will look like between the UK and Europe, what affect Brexit will have on energy investment within the UK, and what the impact of Brexit will be on jobs and climate change.

Energy ties

The UK’s energy and climate ties with Europe are part of a long list of negotiations that the UK will need to embark on with the EU. There is no doubt that some sort of tie will continue – we rely on gas imports from the EU and our energy markets are deeply integrated. In order to maintain these relationships it’s clear that we will have to continue to follow, to some extent, EU rules.

Up until now the UK has played a huge role in driving forward the competitiveness, security and climate policies of the EU, bringing member states into a closer working partnership. It has now lost the ability to influence EU decisions.

However, much of the focus of the leave campaign was precisely to enable the UK to reach its own agreements, which may now broaden out of the EU and go beyond it. The freedom that Brexit brings may herald a new era in self-sufficiency where natural gas is concerned.

More freedom but less investment

Unencumbered from EU rules and regulations, the UK may now be able to push ahead with a Government-backed fracking programme as well as enjoying more freedom to pursue its nuclear ambitions.

However, the costs of new energy infrastructure are unclear. On the one hand, the UK could now be subject to import taxes on equipment, but on the other, may have trade duties eliminated, bringing costs down.

The ongoing uncertainty surrounding what deals the UK will strike means that any investment is likely to be put on hold, at least in the short term. That said, both the EU and business leaders within Britain will be pushing hard to get the process underway and to end the uncertainty for the sake of the economy. In addition, Bank of England Governor Mark Carney has promised to ensure there is no repeat of the credit crunch seen post-2008.

Climate change

Much of the UK’s climate change goals are established at a national level, which means that these won’t change. Whether or not the UK remains within the Emissions Trading Scheme will be another subject on the table of the general discussions. From the point of view of the recent Paris climate agreement, the UK would have to recalibrate its agreement, which was previously part of the EU. Detractors warn that, outside the EU, the UK may not be as stringent in its commitments towards climate change and may alter its stance on renewables.

Impact on jobs

Of great concern to businesses both within and outside of the energy sector is the impact the loss of free travel between the EU and the UK will have on sourcing talent. Increased bureaucracy within the UK in terms of finding workers will undoubtedly mean higher costs. This is particularly of concern in an era of cost-reduction. Businesses may decide to now base themselves elsewhere in order to continue to have access to the EU talent pool. This doesn’t just apply to sourcing new talent, but to shifting existing human resources across international locations.

In the end, factors affecting the gas market go well beyond Brexit and its impact. Supply and demand and changes to the global economy continue to play the largest part. Some analysts don’t expect the market to be affected greatly and it is too large a market to be suddenly marginalised. The absence of an immediate “Article 50” trigger heralding an exit of the UK from the EU, means that, for the time being at least, there will be uncertainty for all in this sector both at home and abroad.

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