How will Brexit affect Ireland’s energy sector?
In the last twenty-five years the EU has promoted a convergence of energy and environmental policy across the EU’s member states. Overall the experience is that the alignment of policies has benefited both Ireland and the UK 1. This pursuit of similar energy policies by the Irish and British Governments aimed to promote investment, enhance competition, and increase energy security by improving access to energy supplies. Our oil, gas and electricity markets are parts of larger markets of North-western Europe character within the EU’s energy markets.
Over the same period, and partly as a result of market reforms and investment in new gas and electricity inter-connectors, the islands of Ireland and Britain have become more interdependent in meeting their energy needs. We are both large importers of oil, gas, coal and, from time to time, electricity. Ireland’s energy markets and supply infrastructures are closely linked to the UK and changes in one jurisdiction affect the other.
However, Brexit could in some circumstances lead to short term energy demand and supply imbalances. Uncertainty is the greatest business risk and delayed investment could have economic impacts that could affect electricity and gas prices and supplies in the medium term. Thus the immediate effects will depend on factors that are for the time being unknown – what sort of Brexit? Whether hard or soft? And most particularly the resulting economic climate and its impact on energy demand here and in the UK.
Like Britain, we are large importers of natural gas and oil and until recently we imported between 5 and 10% of our electricity. Approximately half of the gas that we use for electricity and heating and three quarters of our supply of oil products, primarily to fuel the transport sector, are imported via UK ports, pipelines, refineries and subsea interconnectors 2. Under EU regulations, in the event of shortages the UK and Ireland have an Action Plan on gas sharing.
The concern with Brexit is that if the UK is no longer prepared to be subject to EU trading rules, what will take its place? This is the key uncertainty for investors and the most likely outcome is delayed investment. Depending on economic performance prices could go up or down reflecting surplus or scarcity.
Under Brexit, a two-year period of negotiations will determine the terms of the UK’s withdrawal from the European Union. At present, primary energy coming into the EU such as gas from Russia is traded under bilateral agreements. A similar type of arrangement can be made between the EU and the UK or, failing that, it will fall under World Trade Organisation tariffs.