UK Energy After Brexit: An Opportunity for Canada?

The British debate over leaving the European Union (EU) has absorbed a lot of energy in the past few years and has generated more heat than light on what will happen next. Nonetheless, the United Kingdom’s (UK) energy sector has been planning for its post-EU future and the outlines of future energy markets after Brexit is beginning to emerge from the London fog.

According to Energy UK¹, the national energy ministry, the UK will import 6 per cent of its electricity and 47 per cent of its natural gas in 2019. Just 12 per cent of UK natural gas was sourced from the European Union in 2016, which is a net importer of natural gas now, and would become more import dependent² if the UK exits. Currently from within the EU, the UK faces no taxes of tariffs on these imports; after Brexit and the expiration of existing contracts, imported energy prices could rise either because the EU imposes a new tax or because EU suppliers see an opportunity to leverage the situation profitably. Another concern for British consumers is the risk of extreme weather and an associated energy demand spike that overwhelms the capacity of import infrastructure and leads to shortages as well as price increases.

Leaving the EU could complicate domestic energy supplies because four of the “Big Six” energy companies that supply the UK market are owned by EU firms: EDF Energy is a state-owned French company; Npower and E.ON have German parent companies; Scottish Power is a subsidiary of Spain’s Iberdola. British Gas (a division of Centrica) and Scottish Hydro SSE are UK headquartered, as are many of the alternative energy firms operating in the UK. If Brexit leads to tax and investment changes for EU owned firms in the UK, the stability of the downstream energy market could be disrupted.

Ireland and Northern Ireland also face energy supply risks associated with Brexit. Irish energy imports largely pass through the UK, with Ireland and Northern Ireland (part of the UK) importing to meet roughly 39 per cent of natural gas and eight per cent of electricity³ demand. Since Ireland will remain an EU member state, Brussels is unlikely to interfere with UK energy supplies from continental Europe since doing so could have implications for Ireland. However, in an acrimonious no-deal Brexit, collateral impacts on Irish consumers are possible.

To forestall these worst-case scenarios, the UK government has been exploring its options. First, Qatar, currently the largest foreign LNG supplier to the UK and owner of the South Hook import terminal in Kent, is leading an effort to secure a trade agreement between the UK and the Gulf Cooperation Council⁴ that would provide for LNG supply continuity without price volatility in the event of Brexit. Second, in 2012 the UK negotiated an energy trade agreement with Norway⁵ that would guarantee continued imports of oil and gas in the event that Britain leave the EU without a deal.

Importing LNG from North America could supplement these sources. In 2019 the UK has increased LNG imports from the United States⁶ and is now one of the ten largest markets for US LNG exports.

Canada’s Canaport LNG facility in New Brunswick is an import and regassification facility that could be repurposed to give Canadian LNG access to the UK market after Brexit. In 2016, Spain’s Repsol (which co-owns and operates the Canaport terminal with Irving) canceled a multibillion dollar plan⁷ to refit the facility for liquefaction and export. Repsol and Irving have spent more than a decade⁸ in litigation trying to block development of LNG import terminals on the US side of Passamaquoddy Bay in Maine.

Yet when compared to the United States and other energy producing countries, Canada has been slow to capitalize on the export opportunity for LNG after Brexit. Last summer, as Brexit negotiations were underway, Canadian officials warned that provisions of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) would not be “rolled over”⁹ to cover trade with Britain after Brexit. Instead Prime Minister Justin Trudeau indicated¹⁰ that UK-Canada trade negotiations could begin “the day after Brexit occurred.”

This position may be worth revisiting now. Britain appears closer to Brexit in 2019, with or without a deal with the EU. Rival suppliers have moved ahead through deals that will help meet UK energy needs should Brexit occur. Canada can still get in the game now that the federal election has passed. Prime Minister Trudeau is in a weaker position now as head of a minority government and boosting energy exports to the UK would bolster the Canadian economy – while helping Britain, a country that helped build up Canada and is more than a mere ally and trading partner after all.

Christopher Sands is senior research professor and director of the Center for Canadian Studies at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies (SAIS) in Washington, D.C.