Brexit 'Could Reduce UK Market Liquidity': Lawyer
Taking the UK out of the European Union will probably lead to more gas trade at continental hubs at the expense of the UK, a lawyer told an audience at the UK Oil & Gas breakfast briefing on Brexit in London February 1.
More fundamentally, the imposition of tariffs on imported goods, to the level permitted by the World Trade Organisation, could pose problems for the competitiveness of the supply chain. The ability to hire key personnel from overseas could also be damaged, depending on the terms on which the UK secures its exit.
Herbert Smith Freehills partner Silke Goldberg said that the UK had plenty of LNG import infrastructure and that it was well connected by infrastructure to the continent and the Interconnector UK (IUK) and Balgzand-Bacton (BBL) gas pipelines did not get congested, so flows could continue. However she said it was likely that more trading would move overseas – the Dutch Title Transfer Facility (TTF) has already overtaken the UK National Balancing Point by some measures – while Zeebrugge appeared to be positioning itself as Europe's major LNG trading point.
"The interconnectors are likely to be used in the future, absent any drastic changes in tariffs," she said, but there is a risk of them going up. And Norway, for example, might decide to make the UK less competitive by increasing the price of oil and gas it sells through its pipelines, as there is nothing to stop it from raising prices once the UK loses the protection of the single market.
It could also lose the protection of any solidarity mechanism in the European Union where member states with spare energy supply it to a distressed neighbour, as well as information about imminent changes in supplies, access to the Gas Advisory Council and other fora for exchanging information.
Where congestion could occur, she said, was in the negotiating arena: there are over 50 international trade agreements from which the UK benefits she said. There are also a handful of Commonwealth members in active or advanced talks with the EC, such as Canada, which has reached the stage of ratifying the Comprehensive and Economic Trade Agreement.
After Brexit, the UK will have to negotiate with the EU-27, not with member states which, like the UK, have lost the right to strike their own deals. As the UK has not negotiated such a deal for a generation, there is also a deficit of experience.
Article 50 is expected to be triggered on March 9, according to business advisory firm Global Counsel's Matt Duhan, with the first item on the agenda thereafter the size of the UK payment to the EU, which the EC puts at €60bn and the UK at only €20bn. "There is a lot of difference between the two, and that is the first bridge to cross," he said.
Speaking for the Confederation of British Industries (CBI), its international director Ben Digby said it should be an immediate priority for the UK government to secure a reciprocal agreement on the status of EU nationals living and working in the UK. This should not be a negotiating position, he said but the prime minister should publicly state the importance of retaining them now.
This question had been a major issue for the CBI membership, he said, another being the importance of securing a smooth transition to life beyond -- rather than the dreaded 'cliff-edge' where British industry wakes up one morning, maybe in two years' time, facing completely different and tougher rules, regulations and customs tariffs from those applicable the day before.