The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
Ever since the creation of the European Coal and Steel Community back in 1951, and with the established cooperation between the U.K. and the EU, energy has been a priority across the European continent.
As the first member state to leave the European Union, the U.K.’s exit from the EU is destined to be the most complicated negotiations that the EU will ever experience. According to many EU technocrats, the two-year-long negotiations will not be enough to reach an agreement. Considering the strategic alignment of energy and compromises reached over the years between the EU and the U.K., special attention is due to be paid on critically important cooperation in energy policies.
The internal energy market (IEM), established under the Lisbon Treaty, has enabled harmonious and tariff-free trading in the gas market within EU borders. It has also facilitated transparency, consumer protection and ensured supply security. The IEM is of vital importance for the removal of barriers, and for the establishment of common rules for the EU, the U.K. and the Republic of Ireland.
For the continuance of policy alignment in the natural gas sector at least during the transition period, the U.K. may seek to remain in the IEM by agreeing with eight neighboring territories to sign association agreements under the Energy Community Treaty.
As a party to the IEM, the U.K. would be given a degree of accessibility to the EU’s gas market while consumers would continue to benefit from increased diversity of suppliers as well as much lower prices. However, such deals will not be easy to implement given Switzerland’s years of negotiations over IEM membership, and still, its members have currently blocked access because of a carbon emissions scheme that Switzerland has not adhered to.
At the turn of the century, the U.K. was a net energy exporter. As of 2015, however, the U.K. imported 38 percent of its energy mostly through Norway and the EU. Depletion of old fields, the decline in demand due to economic recession as well as the closure of coal mines resulted in the structural shift in the U.K.’s energy mixture.
In the natural gas field, the U.K.’s overall dependence on foreign resources might slightly increase in comparison with the EU-28 countries. However, given the gas glut that the world is experiencing, particularly in LNG, the U.K.’s first priority does not seem to be the security of supply.
In spite of the U.K.’s very successful gas market structure with many years of experience in unbundling and restructuring, the U.K.’s international gas trading hub status - the National Balancing Point (NBP) could possibly shift from being an international gas trading hub to a more regional hub, with less liquidity. This shift could further stress the NBP, resulting in an increase in liquidity in the Dutch gas hub, known as the Title Transfer Facility (TTF).
Following the Brexit, the NBP’s volatility could possibly increase with dwindling trade volumes. Challenges faced in recent months in trade volumes could be interpreted as the first market reaction to the Brexit. The Dutch TTF could replace the NBP’s international role in adapting to new market conditions in the coming years. The Dutch TTF has already shown a greater trend towards overtaking the NBP’s trade volume. Therefore, the NBP could diminish from being an international gas hub to that of a more regional hub.
Following the U.K.’s departure, the U.K. will be required to renegotiate its relations with Norway, which currently provides approximately 40 percent of its gas. The use of three major pipelines, connecting the U.K.’s gas market with that of the EU, namely; Moffat, Interconnector U.K., and Balgzand Bacton line, also would become part of the negotiations.
Given the U.K.’s falling domestic production, and the technical issues faced in gas storage, which currently equates to 6.6 percent of the U.K.’s annual gas consumption, Ireland’s gas supplies would possibly be the most affected resulting in disruptions. It still is unknown how Ireland will react once the U.K.’s exit is completed resulting in disconnection from rest of the EU market.
Further time is required to fully grasp and understand the full implications of the Brexit on the energy market and in particular the gas market. However, if the U.K. continues an arrangement with the IEM, allowing an agreement to be reached, it could be the best possible option both for the EU and the U.K.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.