The cost of independence for the British gas market
- Written by Laurentiu Rosoiu
If we talk about Brexit and its implications, the major debate was about the impact of this event on the European gas market. It is a very relevant topic, given Britain’s position in the European system.
Less approached, but equally important and relevant, is the issue of the Brexit consequences on the British economy. A topic on which we can only imagine a series of working hypotheses on a ‘scale of gravity’ ranging from ‘soft’ to ‘hard’ Brexit; the first, which would bring almost no change to the current situation, the second could turn upside down the trade relations between the island and the continent.
However, ‘soft’ Brexit may be, there are a multitude of possible negative effects for the UK that deserve public attention. Thus, the main result of Brexit, and the starting point for any of the scenarios, is that Britain will give up its position as the main pillar and spearhead of the liberalization process for the European gas market and will position itself outside it. From here on, the door opens wide for any type of working hypothesis. Among the many subsequent themes that should be discussed in order to place Brexit in the context, at least three, in close connection, have a particular relevance in terms of negative effects on the British economy.
Thus, first of all, the Brexit takes place at a time when the UK gas reserves exploited in the North Sea are in full decline whereas the shale gas exploitation does not seem to have the capacity to offset the trend. At the end of 2016, the representative of one of the leading companies said that the British oil and gas industry exploits the deposits at a rate four times higher than the replacement rate. Until recently, the trend wasn’t worrying, given that by belonging to the European gas market, Britain had access to Norwegian gas (Norway being part of the European Economic Area) and to the gas from the continent; after Brexit, however, both the continental and the Norwegian gas will become ‘imported gas’.
It is true that, in principle, the UK is a net exporter of natural gas, at least for the time being. Even so, however, there were few situations where, over the short term, generally during winter, it turned into a net importer. This contributes to the relevance of a second topic for discussion, namely that Britain is taking the step outside the European single market without having an adequate natural gas storage infrastructure. Hitherto, in potential times of crisis, it could rely on the European Union’s storage capacity (accounting for about 25% of annual consumption); after Brexit, however, the UK may only rely on a level of less than 5% of the annual consumption - the level of the national storage capacity.
Subsequently and concurrently, closely linked to the two topics discussed above, the fact that the NBP (National Balancing Point) natural gas hub has all the chances to turn from an international player into a regional one is another major loss for the UK. This is because leaving the regulatory framework of the single market and breaking away from the European gas market infrastructure will automatically lead to the decrease in number and value of transactions conducted here and to increased volatility. And this will translate for the UK into another loss, both in reputation and authority, and financially; the latter comes together with the very likely losses due to restricting the access of the British financial players to the single market.
These are just three of the directions where the UK can register significant losses in the gas field following the Brexit. Nevertheless, freedom always comes at a cost!