Until now, his influence energy crisis he didn’t take her very seriously Europe. However, the risk has not passed, and the oil giants are not at all considering a new price increase, related, among other things, to the policy pursued by the European Union.

This risk, mostly linked to a cap on Russian oil prices, “could cause significant and abrupt changes in the broader market landscape, likely to affect their orderly functioning and, consequently, economic stability,” Bloomberg notes. reported a few days ago. The cap (also known as the Market Correction Mechanism) will take effect on February 15th.

Currently, the price of Brent crude oil has been steadily declining since December 30, as has the most important natural gas market in the Netherlands.

Robin Brooks, chief economist at the Institute for International Financial Affairs, stressed on January 26 that falling prices send a mixed message to Europe. If not a crisis, then there is still an “energy shock,” Brooks wrote on his Twitter account. Electricity prices are higher in some countries, most notably in Germany, where the “heart” of the European economy beats.

Electricity prices for Europe remained elevated year-on-year, even as commodity prices declined.

LNG and the need for new bridges

The EU has succeeded in excluding Russian oil from its energy balance, although natural gas supplies continue through the Turkish Stream pipeline. A certain amount of Russian oil enters Europe through transshipment. To replace them, Europe has begun building bridges with countries such as Qatar, Egypt, the US and Azerbaijan (to transport natural gas). At least one of them is an increased political risk.

The United States has replaced part of Russian gas supplies with liquefied natural gas (LNG). This requires the appropriate infrastructure, which Europe needs to develop further, although it has enough to make the US its main supplier of LNG. The US became the world’s largest LNG exporter in the first quarter of 2022, thanks to Europe, according to the Energy Information Administration.

LNG is more expensive than natural gas transported through pipelines, but at least for the time being it relieves Europe of the political risk of partnering with Russia to some extent.

For this reason, EE has overlooked the rising cost of LNG due to the need to become independent of Russian energy. However, a December 20 report by Gavin Maguire to Reuters said that in 2023 the Union will focus more on the issue of costs, as well as possible ways to reduce them. Such a move “could make it particularly clear how dependent Europe is on energy imports,” Maguire said.

Knowing the above, EE is forced to look for other suppliers of cheap natural gas.

Azerbaijan case

Russian gas accounted for about 40% of all imports to European countries and 60% of imports to Germany. During the last 20 years the EU. increased purchases of Russian gas by about 150%.

When sanctions began to be imposed on Russia because of the war in Ukraine, Europe hastened to target Russian gas and oil. Russia has retaliated by further hindering Europe’s access to this important fossil fuel. Europe had no choice but to look for new partners.

Azerbaijan was the solution to last summer’s gas supply problem. The country already supplies gas and oil to Greece, Austria, Bulgaria, Germany, Italy, Spain, Ireland, Portugal, Romania, Croatia and the Czech Republic.

In 2022, the volume of Azerbaijani gas supplies to the EU reached 12 billion cubic meters, and according to the Union, imports will double by 2027. However, natural gas from Azerbaijan will not be enough to fill Europe’s energy gaps.

Russia has the largest gas reserves in the world, at 37.4 trillion cubic meters (tkm). Azerbaijan has 2.5 trillion m3, neighboring Turkmenistan 13.6 trillion m3 (or 19 trillion m3 according to other sources) and Kazakhstan 2.3 trillion m3. However, gas from Turkmenistan and Kazakhstan will only be able to reach Europe through Azerbaijan via the Trans-Caspian pipeline. The problem, however, is that this pipeline currently only exists on paper.

The path to energy security

In addition, in seeking to expand its trade partnership, Europe must take into account other factors that could affect energy supplies, such as a second war, given the tense situation in the Nagorno-Karabakh region on the Armenian-Azerbaijani border.

In the past, MEPs have called for sanctions against Azerbaijan because of the war. In addition, in December US Congressman and Republican Michael Garcia of California (where there is a large Armenian community) also called for sanctions.

However, there are currently no indications that such measures against Azerbaijan are being considered.

In Europe, the most ominous forecasts for this winter have yet to be confirmed, but this is partly due to relatively mild weather and lower gas prices. However, the fact is that some countries are in a better position than others.

Oil prices will largely depend on the course of the European economy, as well as the risks associated with new energy agreements.

Business activity has risen, according to the latest PMI data. For the outlook to continue to improve, investors and companies will focus on developments in Ukraine, as well as how protected from … “drama” the energy supply chain in Europe.

^{Source: Forbes}