GSM London in partnership with plymouth university
Module Title: International Energy Policies
Module Code: POG212
The dynamics of United Kingdom in relation with other European Union member states will significantly change over the coming years. This new direction is a result of the June 23rd 2016 referendum to leave the European Union. This impact will be far reaching on every sector of the United Kingdom. The major contributor to the economy, second only to the banking sector is the energy sector, this sector will be significantly impacted due to current depletion in the off shore reserve, the controversies and uncertainties surrounding the unconventional oil and gas industry, the slow growth in the renewable energy sector and the dependence of electricity supply from other EU countries. To this far reaching extent, the policy framework will have to be revisited to accommodate the wishes of the British people in relation to their coexistence with their closest neighbours and biggest trading bloc.
“Using the SWOT analytical tool, critically analyse the impact of the recently concluded Brexit referendum on the United Kingdom’s energy policy framework with particular emphasis on ANY ONE of the following energy sources
- conventional/unconventional oil or gas or
- the renewable energy sources or
- electricity generation and distribution.
The exit of the United Kingdom from the territory of European Union is known as Brexit. This was a landmark decision from the United Kingdom that carries forwarded many questions to the world economists. The decision was very close; almost 52% votes were given in favor of leaving the European Union. Thus, the other 48% of people were dissatisfied with the decision. United Kingdom was a dominant part of the European Union territory; it used to contribute a major portion of share in the EU economy. For this reason, Brexit left a predominant impact not only in the EU economy but also in the world economy. Almost every sector of the United Kingdom got affected for Brexit either positively or negatively, specially the energy sectors. The oil or gas sector is one of them.
A) Examining the framework of energy policies:
Every industry in the United Kingdom goes through some business framework. The business frame works to assist the sectors to maintain sustainability in the economic condition of the country (Ramiah et al. 2016, p.5). It is the amalgamation of the organisational rules and policies to develop a proper framework in the industry. It deals with some specific programs and procedures in the organisation and these guides or strategies can be rectified if necessary. The oil and gas sector in the United Kingdom also maintain these strategies. The framework of the oil and gas industry in the United Kingdom governs many issues in the industry from the price fluctuation, industrial demands to the changes in the technological advancement (McKee and Galsworthy, 2016, p.4). May sectors are there in UK’s oil and gas industry, like the upstream, midstream, downstream. Thus, the organisation needs to maintain all these sectors while maintaining old framework or reviewing the new. The overall process might seem easy; however, the application is very difficult, as apart from the internal source the organisation also needs to deal with the exterior origins like the new or professional bio fuel companies, energy providers, and pipeline companies.
In October 2008, the United Kingdom updated their legislative frameworks in the United Kingdom. The legislative law is the statutory laws. A legislative law has many objectives, there is some regulation regarding the outlaw policies, the authorisation policies. The oil and gas industry play a crucial role in participating in the economical sectors of the industry. Thus, the frameworks of these industries are also strict and majorly related to the economical factors of the country. Recently before Brexit, the United Kingdom along with the European adopted the European commission's consultation on a 2030 framework for the climate and energy policies (Holmberg et al. 2012, p.230). Thus, after Brexit, it is a huge challenge for the United Kingdom to maintain the climate change policies in their industry, as the government already took a number of crucial frameworks to emission the greenhouse gas. The overall tasks of the oil and gas industries need to deal with the elements that pollute the environment. Thus, tackling the matter of climate change and reducing the carbon dioxide comes as a challenging framework for the industry. The frameworks related to the climate change policies have been made thinking of the long-term benefits. In 2006, United Kingdom introduces many nuclear industries were introduced to in response to the future business benefits of the nation, however, now they need to think about the policies as the climate change policies strictly do not allow the nuclear industry to follow their previous frameworks because this might harm the environment in many ways. The European Union has decided to cut the carbon emission by almost 95% by 2050 and as it is a crucial target the European union took the target to decrease 40% of greenhouse gas by 2030 (Busch and Matthes, 2016, p.10). Thus, the balance of frameworks is very necessary and it got more challenging after Brexit. On the other hand, millions of people’s daily lives are linked with the work of this industry, for this reason, to meet the potential energy; demand along with working with the stakeholders is not an easy task. The frameworks somehow help the industry to maintain the demand. However, the committee in the UK regularly investigates the actions of all the frameworks.
B) Demonstrating the global challenges and issues of the oil and gas industry:
An industry goes through many different stages and challenges at the time of doing its business and when it comes to a business like the oil and the gas industry then the challenges the industry face is more provocative. The 21st century opened up many new possibilities for the industries like the oil and gas organisation (Sathyanarayana and Gargesha, 2016, p.119). Along with that, many new mini and micro trends came in their ways that have many affective elements in the Global industry. After the global phenomena of Brexit, there are some additional challenges for the United Kingdom that they need to face.
i) Unconventional resources: many new industries are growing everyday as the technological advancement occurred the in the modern industry. The oil and gas industries are unable to provide adequate amount energy to the consumers. Almost 52% of the overall industry in the country and outside of the country is depending on the oil and gas industry and as per the demand, the sources are becoming very less to supply them enough energy (Kelly, 2016, p.28). The alternative fuels or the second generation of the bio fuels are also coming as major challenges to them as nowadays most of the people preferring these energies in comparison to the bio fuel energies.
ii) The carbon reduction target: The United Kingdom assigned with the climate change policies before Brexit. Thus, after Brexit, the policies did not change and the UK needs to maintain the policies still now. As a result, the pressure is huge for the oil and gas industry. A recent report had shown that the oil and gas industry creates most of the pollution in the environment (Ramiah et al. 2016, p.6). For this reason, the oil and gas industries are in a challenging position as they need to think about a way, so that they the industry do not pollute the environment in the same way as before.
iii) The financial problems: nowadays the oil and gas industries need to go may distant places to find the source of oil. As they are extremely hard to access, the oil and gas industry needs to organise many modern tools like drilling machines, they need to hire many experienced engineers from different parts of the world (Sahr et al. 2015, p.10). Thus, the overall cost of all these is getting higher and sometimes it is exceeding their yearly budget. Besides the Brexit situation shook their economic condition as if they want to go to a separate land for the source of oil then the cost they need to pay is much higher than the estimated cost.
The above situation can be well defined with the SWOT analysis of the department. SWOT represents an organisation’s strength, weakness, opportunities and threats (Hansen et al. 2012, p.2420). This analysis assists the oil and gas industries to identify with all the external and internal factors in business.
a) Strength: The strength of the oil and gas organisation is their huge organisation and its potentiality to connect with the consumers. The energy that the oil and gas organisation produces is the basic need of almost all the people in the country (Ojo, 2016). Thus, the support of people in the country comes as the biggest strength of this industry.
b) Weakness: the alternative sources are the biggest weakness of oil and gas industry. As previously discussed the oil and gas organisation is responsible for the major amount of pollution in the industry, most of the people are trying to avoid the energies from the oil and gas industries as much as possible (Wright et al. 2016, p.685). Along with that, the effect of Brexit gave this industry some major economic challenges to deal with.
c) Opportunities: As this industry’s customer base is very strong and the service they provide has become the basic need of those consumers, thus the oil and gas organisation does not need to worry to make new opportunities in the global market (MacDonald, 2016, p.6). Still, as per the changing global industrial scenario, they continue to look for the new opportunities, like a new community to serve or a new group of consumers to introduce with.
d) Threats: one of the major threats in the oil and gas industry nowadays is the cyber security. The overall oil and gas industry in the UK is inter-connected, thus the control system of the industry widely spread (Ross, 2012). Any attack on the network of the oil agency can disrupt their business. On the other hand, to consume energy and to save the nature most of the organisations now prefer solar energy. It is an alternative energy source of the oil and gas industry, thus, it also comes as a threat to the organisation.
C) Factors affecting the long-term prospect:
The long-term effect of Brexit can both benefit the oil and gas industry or it can harm the industry, as the social, economical and political structure of the United Kingdom has shaken hugely. For this reason, it is difficult to predict the long-term prospect of it (Kelland, 2014). Still, there are few factors by which the future aspects of the oil and gas organisation can be analyzed.
Brexit is kind of isolation for the United Kingdom, thus, the government of the UK needs to concentrate specially in this matter. The government needs to change its previous policies that would not work in the environment after Brexit. After the withdrawal from the European Union, UK the whole legislation system including the North Sea regulation that comes directly from the directive legislation from EU worked very well. The oil and gas industry in the UK placed a high standard in the global economy, thus, post-Brexit they need to go through some new regulation to maintain their position in the global market.
Thinking of the future aspect the energy industry is now concentrating on making a common infrastructure to gain more open source market in the European Union (Turnheim and Geels, 2012, p.45). The UK has no probability to link with the Europe any more, for this reason in future the oil and gas industry will not get any additional support from the government of European Union. Previously the oil and gas industry of UK was a joint collaboration with the EU, however, the situation now is completely different. On the other hand, previously the workers in this industry came from many different territories of the European Union, however, now the industry need to pay them additional charges as they are coming from outside of the United Kingdom (Kermani and Morshed, 2013, p.670). With the effect of the Brexit now the UK will be free from making renewable energy directly. This obviously comes as a negative step back for the oil and gas industry as the anticipated renewable energy would have helped and develop the oil and gas industry in a better way.
As previously discussed post-Brexit situation comes with many major and minor challenges for the United Kingdom. The challenges include dealing with the new economic condition, political condition, and social condition, as the United Kingdom now appears as a completely new territory. The challenges also become tougher than before, thus evaluating the situation the United Kingdom needs to be more aware of the social and political scenario. Especially the political scenario might not be same in every region of the UK, for this reason, according to the political region the oil and gas organisation needs to work on it. The industry also needs to upgrade their old infrastructure, because the old infrastructure was made according to the political and economical structure of the European Union. Along with that, the oil and gas industry also needs to be more careful of their annual budget system, as it determines the future perspectives of the industry.
In conclusion, it can be said that, at present United Kingdom fulfils almost 40% of their gas from the North Sea and approximately 12% of the LNG imports and if the UK can utilise these oil and gas sources cleverly then the industry will not have any problems in serving half of the consumers in the UK. Of Course, the problem of Brexit comes, as a major problem for the UK, still, if necessary steps are taken then the problems can be resolved.