Europe may have done a good job of reducing its dependence on Russian oil and gas and easing the energy crisis caused by the war in Ukraine, but it is “not out of the woods yet”, said to CNBC the head of the International Energy Agency (IEA). .
“Europe has been able to transform its energy markets, reduce its share of Russian gas to less than 4% and its economy has still not gone through a recession,” IEA executive director Fatih Birol said on Sunday. to CNBC’s Martin Soong.
“Europe’s emissions have come down…and gas storage is at very decent levels,” Birol said, speaking on the sidelines of the Group of Seven summit in Hiroshima, Japan.
Russia has traditionally played a pivotal role in the global energy complex, but Western nations’ dependence on the country’s energy has been drastically reduced as they continue to unveil new sanctions to punish Russia for its ongoing invasion of Ukraine.
“European countries did a good job…last winter,” the IEA chief said, noting that the region had managed to keep the lights on and avert a winter crisis, in part thanks to a winter milder than expected.
Birol warned that the global energy market still has three main hurdles to overcome this year.
1. Growing demand from China
Global energy supplies were abundant last year when China was still in check and buying less oil and gas due to a slowdown in economic activity. However, the same cannot be said now and Europe could face a tougher winter this year.
China’s LNG (liquefied natural gas) demand is expected to rise in the second half of the year, Birol said, adding that gas imports into the country are a “key determinant” of demand for natural gas markets. .
But Birol thought there might be a silver lining – prices could be softer than expected and he doesn’t expect to see a “big boom” in imports from China.
2. Dependence on Russia remains
Another major challenge facing energy markets is that Europe’s dependence on Russian gas has not been completely eradicated. Many countries in the region were forced into an energy crisis last year when imports of Russian gas were drastically reduced.
Gas exports from Russian energy giant Gazprom to Switzerland and the EU fell 55% in 2022, the company announced in January. Birol noted that if there were further cuts in gas imports “for political reasons”, Europe could again face “certain challenges” in the coming winter.
Birol believed the G-7 and European countries would not go back to making deals with Russia, adding that the Russian gas story was “over” and “it’s over.”
3. US Debt Default
Players in the global energy market are also keeping a close eye on on the heated negotiations between the White House and the Republicans on the American debt ceiling. Without an agreement, the United States could face a default in early June, although this is considered unlikely.
Negotiations were halted while President Biden attended the G-7 summit in Japan, but he must feedback in Washington, DC on Sunday. President said at a summit press conference that he is “not at all” concerned about the negotiations and that “we can avoid a default and we will do something decent”.
Birol said a US debt default would lead to lower oil demand and prices, but agreed such a scenario was unlikely.
“I would avoid giving you a specific number, but one could expect a significant drop in the price of oil if we see such a default.”
“This issue in the United States will be dealt with and common sense will prevail. And I don’t see any major risk to global oil markets. But of course oil markets are always involved with risks.” he added.
Oil prices rebounded on Friday from losses of more than 1% the day before as investors grew cautiously optimistic that the risks of a US debt default were easing as talks continued. ..
[colabot2]
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