With winter upon us, UK businesses continue to focus their attention on the social and economic impacts of the COVID-19 pandemic. However, with the end of 2020 closing in, this brings with it the full force of something many businesses have, understandably, seen slip down their order of priority – the end of the Brexit transition period on 31st December 2020. It's not something that companies operating in the UK's oil and gas sector can ignore.
Participants in upstream oil and gas may consider themselves sheltered from the more substantial changes caused by Brexit given that offshore operations are principally regulated at a national level. However, there are areas which cannot be overlooked, even for operators. The most pressing of these include:
- importing/exporting of goods, where, according to Oil & Gas UK, the cost of trade with EU nations could double under World Trade Organisation (WTO) rules;
- the replacement of the EU Emissions Trading System ("EU ETS"). According to the Government, the UK remains open to creating a linked ETS scheme with the EU ETS. Failing agreement with the EU, which has not yet been reached, it will look at implementing either an unlinked scheme or a Carbon Emissions Tax on 1 January 2021. Consultation on the new tax closed on 29th September 2020, and elements of the tax, including the methodology for setting emission allowances (particularly from 2023 onwards) and a financial reward for decarbonisation, are yet to be finalised and legislated for;
- in general, a curtailed role in shaping energy policy (including environmental policy) at an EU level, could have a material effect on all aspects of the UK's oil and gas industry; and
- the impact of the end of freedom of movement and the UK's new points-based immigration system. Operators may want to consider the implications of the new rules, which are likely to result in a need for more planning in terms of any recruitment process and an increased budget for sponsorship of workers who are not British or Irish. Issues to consider include budgeting for increased immigration fees, as operators are likely to be involved in sponsoring: (i) EEA and Swiss nationals; and (ii) those in medium skilled jobs that will be eligible for sponsorship. Operators may also want to ensure that any existing EEA and Swiss nationals within their workforce, who are resident in the UK before 31st December 2020, apply through the EU Settlement scheme before the cut-off date to ensure that they can continue to lawfully work in the UK. New rules will apply to so called Frontier workers who are employed or self-employed in the UK but who live elsewhere. They will be required to apply for a frontier worker permit in order to continue working lawfully in the UK.
What's true is that the impact of Brexit is likely to be more keenly felt in the downstream sector. The Scottish Government's paper, "COVID-19: The Case for Extending the Brexit Transition Period" discusses proposals that could result in a 0.7% higher tariff being levied on UK petroleum product exports to the EU in comparison with imports. The Scottish Government is concerned that the imposition of such non-reciprocal tariffs may place UK refineries at a competitive disadvantage to their EU counterparts, and goes on to say that:
This could add more pressure to an industry already feeling the strain caused by the dual impacts of COVID-19 and the global oil price downturn. UK refineries will be required to evaluate whether they can remain competitive should these higher tariffs be charged against their products.
Negotiations on a post-Brexit trade deal between the UK and the EU continue. While any such deal may resolve or mitigate any harmful trade consequences for the industry, the clock is ticking towards a "No Deal" outcome. Furthermore, the position on the end of free movement has already been settled. Therefore, businesses should be alert to the potential challenges of Brexit, all of which remain on the table this winter season.