Brexit energy matters greatly. It was fascinating to watch the drama unfold as they counted the UK votes. As reality dawned that there would be a British exit (Brexit) from the European Union, the real picture of leaving vs. remaining started to unravel. The margin was incredibly slim. First, there was an initial wave of relief for traders as they believed as predicted Britain would stay in the EU, this suddenly turned to panic and a scramble to unwind positions as the leave votes edged ahead until eventually, they won the day.
I was shocked Britain ever agreed to a referendum, but there wasn’t any other choice for a weakened conservative leadership to appease the Euro-skeptics within its party. Asking people to vote on such an emotional topic, with little information and miserable leadership in the run-up to voting, the population was left with few options but emotion. As the referendum was never expected to deliver a leave verdict, it’s hard to see how the current Prime Minister who was keen to remain in the EU will remain in his post.
Sadly, the result leaves almost half the population unhappy, so what next for the UK and Europe?
Firstly, this is just the start of the process, and until the UK notifies Europe of its decision to leave, nothing will change. Once the UK notifies the EU, there is a two year period of negotiation, which in itself is open to extension. This will undoubtedly provide the much-needed breathing space to get to grips with the enormity of the decision and all the implications not just for the UK but for the wider EU.
Factions within several other European member countries are voicing their desire for a referendum, which the EU will be keen to head off as quickly as possible. This morning, Donald Tusk, EU President of the European Council, said he had discussed with all the other EU country leaders the importance of unity and had their assurance – but as we see from the UK – that doesn’t mean much against the will of the people.
What we do know is that with uncertainty, there is volatility – the Europen markets are in turmoil and Oil, Currency, Bonds, and Interest Rates have all been affected – recession talk is back on the agenda.
So back to Brexit energy matters, what will a post-European landscape look like for Britain?
The UK is a net importer of natural gas and coal, both essential fuels for electricity generation. Currently, shortfalls in the natural gas supply flow from mainland Europe through subsea interconnectors and gas lines in both the south and northeast of the UK and via LNG terminals on the south coast. Electricity is also delivered through subsea connections between UK and France. A Brexit energy review will need to be conducted, and transition correctly managed to maintain both the security and affordability of supply.
The United States will be keen to exploit its vast natural gas reserves by exporting LNG and position itself as a critical energy trading partner post Brexit.
The dust is yet to settle on today’s vote, the EU and the UK have a long road ahead, but for both sides, there is still one common goal which is sure to prevail – peace and prosperity – and we have to have faith in these powerful drivers to deliver a workable solution for the future.
Our view is – hope for the best – plan for the worst. You can not influence market prices, but you can manage the impact on your business by adopting price risk management strategies. To learn more, visit our risk management page or contact us here.