Despite a marked decline in benchmark natural gas prices in Europe this year, the continent is "not out of the woods" yet as three factors could worsen the European energy crisis later this year, Fatih Birol, the executive director of the International Energy Agency (IEA), told CNBC this weekend.
"Europe countries did a good job... last winter," Birol told CNBC's Martin Soong on the sidelines of the G7 summit in Japan, adding that the region avoided gas and energy supply shortages thanks in part to milder winter weather.
Despite the absence of most of Russia's pipeline natural gas, Europe didn't go into recession this winter and managed to keep the lights and heating on, the IEA's head said.
"Europe was able to transform its energy markets, reduce its share of Russian gas to less than 4%, and its economy still didn't go through a recession," Birol noted.
However, expected higher LNG demand in China after the reopening, the possibility of a U.S. default, and the remaining dependence on Russian gas are three reasons why Europe shouldn't be complacent ahead of the 2023/2034 winter, the IEA's top executive warned.
Commenting on the ongoing talks on raising the U.S. debt ceiling, Birol told CNBC,
"This issue in the United States will be dealt with and common sense will prevail. And I don't see a major risk for the global oil markets. But of course, oil markets are always involved with risks."
Europe's natural gas prices have returned to the pre-war levels, while gas inventories in the EU are at their highest for the spring in at least a decade.
The front-month futures at the TTF hub, the benchmark for Europe's gas trading, have dropped below the $32.49 (30 euros) per megawatt-hour (MWh) mark and traded at $32.34 (29.86 euro) per MWh as of 12:23 p.m. GMT on Monday.
As fears of a natural gas crunch did not materialize this past winter, pulling European gas prices down, Europe shouldn't count on another warmer-than-usual winter and less competition from Asia as it prepares for the 2023/2024 winter, according to analysts.
By Charles Kennedy for Oilprice.com
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