Analysts consider likely consequences of ‘Brexit’

Offshore staff

EDINBURGH, UK – More analysts have commented on the UK electorate’s vote to withdraw from the European Union.

Britain has been a net importer of energy since 2004. According to Wood Mackenzie, if the fall in the value of sterling over the past two days is sustained, this could lead to rising energy costs for UK consumers.

The UK’s gas contracts/imports from Norway, the Netherlands and Qatar, which accounted for more than 90% of its total imports in 2015, are stipulated in GBP, with the sellers bearing the exchange rate risk.

However, LNG imports from the US, denominated in dollars, will have an increasing influence on the UK’s gas supply mix.

The impact of the vote on the UK’s upstream sector will likely be limited, WoodMac said, as the sector is fully regulated by the UK government. However, the exchange rate may impact costs and margins.

A sustained depreciation of GBP might benefit upstream operators from a lower cost base relative to US dollar-denominated oil and gas prices.

Some commentators have played down the long-term impact of the referendum on global oil markets.

S&P Global Platts pointed out that European production, centered on the North Sea, is relatively marginal, constituting less than 4% of the global total last year, while UK production is about 1% of the total, at around 1 MMb/d.

Douglas-Westwood
(DW) said a greater risk to the energy industry would be a global economic slowdown, which would suppress oil prices for longer and delay investment in exploration and production.

UK-listed oil companies such as Shell, BP, and Tullow have in fact fared relatively well since the referendum decision was announced. With a large proportion of dollar-denominated revenue coming from abroad the devaluation of Sterling actually benefits these companies, DW suggested, and they should see in a boost in their reported revenues.

DW also noted that for now, there is only a perception of risk generated by uncertainty over what “Brexit” actually means. Negotiations on Britain’s exit have yet to start and the timetable and extent of the UK withdrawal remain to be seen.

Prime Minister David Cameron has made it clear he will leave triggering of Article 50 of the Lisbon convention, signalling withdrawal, to the next leader of the Conservative party. So despite the outcome of the vote it remains possible that the (largely pro-Europe) government could deliver a “Brexit-lite” outcome or even no Brexit at all, DW claimed.

06/27/2016

Share your news with Offshore at news@offshore-mag.com

Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now

Whitepapers

Making DDoS Mitigation Part of Your Incident Response Plan: Critical Steps and Best Practices

Like a new virulent strain of flu, the impact of a distributed denial of service (DDoS) attack is...

The Multi-Tax Challenge of Managing Excise Tax and Sales Tax

To be able to accurately calculate multiple tax types, companies must be prepared to continually ...

Operational Analytics in the Power Industry

Cloud computing, smart grids, and other technologies are changing transmission and distribution. ...

Maximizing Operational Excellence

In a recent survey conducted by PennEnergy Research, 70% of surveyed energy industry professional...