Published in EPT by Wilhelm Sicking, June 27, 2016

Oil and gas issues unsettled after UK vote to leave EU
By Bob Tippee, Oil & Gas Journal, Editor-in-Chief

June 27, 2016   + + +  Policies affecting oil and natural gas join myriad issues thrown into question by the UK’s vote on June 23 to withdraw from the European Union.

An immediate question is the status of Scotland and its crucial role in operations on the UK Continental Shelf. Scottish voters strongly supported retaining membership in the EU. Leaders of the Scottish government were reported to be seeking ways to maintain ties to the EU, possibly in conjunction with Gibraltar and Northern Ireland, where voters also supported staying in the union.

The UK vote also revived speculation about Scottish independence, although First Minister Nicola Sturgeon called a new referendum on that issue “highly unlikely.” An independence initiative failed in 2014.

Also of obvious concern is the flexibility of oil and gas workers to move between the UK and other EU members, now unrestricted. Immigration issues will be subject to negotiations that will begin once the UK provides formal notice of its intention to withdraw. Those talks are supposed to be completed within 2 years unless the parties agree to an extension.

Energy, environmental measures

Negotiations also will have to resolve the British relationship with a host of EU energy and environmental measures, many of which the UK has enacted into law.

The UK’s status in the Energy Union, for example, is now unclear.

That project seeks to harmonize efforts of EU members toward supply security, a fully integrated internal energy market, energy efficiency, climate action and emissions reduction, and research and innovation on climate.

As a supporter of energy liberalization, the UK government can be expected to want to stay connected with the effort, if welcome. But it will need terms of participation as an EU nonmember.

Related to the Energy Union is the EU’s Third Energy Package, which legislates liberalization of electricity and natural gas transmission through unbundling of supply and transportation. Another part of the package encourages cross-border cooperation between transmission system operators.

The UK has gas-pipeline connections with three EU members, Belgium, the Netherlands, and Ireland.

Existing EU directives and regulations directly affecting oil and gas cover matters such as obligatory oil and gas inventories, offshore safety, information-sharing, and price transparency.

Climate initiatives

More generally, the EU has aggressive programs for climate-change mitigation and decarbonization of energy supply. In many cases, the UK has parallel programs of its own.

The EU, for example, has set targets for reducing emissions of greenhouse gases (GHGs) by at least 20% from 1990 levels by 2020. By that year, it wants 20% of energy supply to come from renewable sources and energy efficiency to improve by 20%.

For 2050, the EU seeks cuts in GHG emissions of 80-95%.

The UK has set a target for GHG emission cuts in 2050 of 80% and a renewable-energy market share in 2020 of 15%. Its climate-change legislation includes 5-year “carbon budgets” and covers adaptation measures.

The UK participates in the EU’s Emissions Trading Scheme (ETS) and had a cap-and-trade system of its own before the European version began operation.

If the breakaway country stays on course with climate mitigation, it probably will want to remain part of the ETS.

But even that is uncertain after the resignation of Prime Minister David Cameron, a supporter the country’s climate policies who wanted his country to remain in the EU and called for the vote that contradicted his wishes.

Contact Bob Tippee at bobt@ogjonline.com