In an analysis of the possible impact on tankers, Gibson Shipbrokers said that the UK has a relatively small piece of global tanker trade.
However, leaving the EU will have an impact, most notably on regional trade between the UK and EU.
This year to the end of August, 2019, 57% of UK clean petroleum product (CPP) exports was shipped to the EU, currently subject to zero tariffs. But, if the UK leaves without a deal, UK CPP exports to the EU would be subject to non-EU country tariffs of 4.7%.
For imports, the UK may consider placing zero tariffs on fuel imports; however, if it elects to do so for one country, under WTO rules, it must follow suit for imports of the same product from all countries. With tariffs being placed on product exports to its largest market (the EU) and zero imports likely on fuel imports, the UK refining industry would be placed at a competitive disadvantage, which is likely to impact trade flows.
For example, Valero’s Pembrokeshire refinery has exported just under a quarter of all its products thus far this year to Ireland. With tariffs being introduced, it may be more competitive for Ireland to source products from the EU. However, subject to the implementation of bilateral trade deals between the UK and other counterparties, it may prove more economical to negotiate UK CPP exports further afield, for example to the US or West Africa.
In effect, the inefficiencies of supply could create increased tanker demand, or alternatively, a scenario may evolve whereby the UK reduces both its exports and imports.
Whilst currently much of the UK’s own product supply is retained, some areas, such as the Thames region, tend to get most of their supply from Belgium and the Netherlands. If tariffs are placed on UK exports, then it may prove more profitable to ship barrels coastwise, rather than to export.
A leaked UK Government document recently stated that the implications of a no-deal Brexit could force two UK refineries to shut down if tariffs were imposed, because it would render them non-competitive, compared to facilities within the EU, although some refineries, such as Total’s Lindsey refinery, sell most of their products back into the UK.
Analyst views are mixed. Reduced trading flexibility would almost certainly impact margins, and potentially force refining runs lower. Between now and 31st October (if that is the date that the UK leaves the EU), there remains a great deal of uncertainty. Without a deal, UK refineries will be impacted, but to what degree is unknown. Tanker trades will be impacted. However, whilst it may be significant for smaller vessels trading across Northwest Europe, the impact for the global tanker market will likely be muted, Gibson concluded.