Brexit is likely to exacerbate the issue of “foreign dependency” on gas supplies for both the UK and Ireland, amid decreasing North Sea gas production, a paper by the Oxford Institute for Energy Studies argued.
“From being hardly foreign dependent at all, the UK and Ireland would become respectively 42 and 97 per cent dependent on foreign gas” OIES's Thierry Bros pointed out.
“As soon as Brexit is formally completed, the UK will still have its own domestic gas supply but will also need to access foreign gas Norwegian and/or EU to meet demand” he explained, adding that by applying this definition, in 2015, 42% of UK demand was ‘foreign’ gas. “In the future, UK gas production is bound to decline and domestic shale gas production does not look promising enough to alter the trend” while “‘foreign dependency’ will also become a major issue for Ireland” he pointed out.
Until now, Ireland has been getting 97% of its gas from the UK.
“In the internal market this was labelled EU gas, but post-Brexit, this same gas will be labelled ‘foreign’ gas.” With no re-gasification capacity, all Irish ‘foreign’ gas will either have to be sourced from the UK or be transited via the UK, the paper argued.
Post-Brexit, “the UK will make up its gas shortfall by importing Norwegian gas but also EU-26 gas , a mixture of domestic and imported gas” Bros continued, adding that essentially this will mean
“the EU-26 would be slightly more dependent on foreign gas than the former EU-28 but both the UK and Ireland would be much worse off.”
“In a world awash with LNG the issue of security of supply is not the primary issue in Brexit negotiations” however “as the LNG supply and demand balance is forecast to tighten during the 2020s, the UK and Irish agendas should then be concentrated on security of supply” Bros said.
UK will have to “reshape its energy diplomacy”
Therefore, the paper concluded, the UK “needs to reshape its energy diplomacy that has in the last decade increasingly been handled by Brussels, with a concomitant decrease in knowledge and power within the UK” as it will need to negotiated gas supplies with both the EU and Norway – which supplies some 38% of its gas – in the future.
Moreover, import-export dynamics on interconnection pipelines between the UK and Continental Europe will come into focus.
“The NBP-TTF spread will have to increase for EU gas to move to and from the UK” Bros explained. On the other hand, “some countries in Europe could be tempted to impose severe and costly regulation on EU-UK pipelines to push up energy prices in the UK allowing de facto the EU to be slightly more competitive.”
Nevertheless, “the issue of Irish security of supply is going to be extremely important during negotiations and could be used by the UK to try to preserve the status quo as this is the cheapest way to provide security of supply to Irish consumers.”