Europe's energy market faces 3 key challenges this year, the IEA's chief says

Europe whitethorn person done a bully occupation successful reducing its dependency connected Russian lipid and state and mitigating an vigor situation caused by the warfare successful Ukraine but it's "not retired of the woods" yet, the caput of the International Energy Agency (IEA) told CNBC.

"Europe was capable to alteration its vigor markets, trim its stock of Russian state to little than 4%, and its system inactive didn't spell done a recession," Fatih Birol, the IEA's enforcement manager told CNBC's Martin Soong connected Sunday.

"Europe emissions person declined … and state retention is astatine precise decent levels," Birol said, speaking connected the sidelines of the Group of Seven acme successful Hiroshima, Japan.

Russia has traditionally played a pivotal relation successful the world's vigor complex, but Western nations' reliance connected the country's vigor has been severely reduced arsenic they proceed to unveil caller sanctions to punish Russia for its ongoing penetration of Ukraine. 

"Europe countries did a bully job... past winter," the IEA main said, highlighting that the portion managed to successfully support the lights connected and kept a wintertime situation astatine bay, acknowledgment successful portion to a milder than expected winter.

Birol warned that the region's vigor marketplace inactive has 3 main hurdles to flooded this year, however. 

The world's vigor proviso was abundant past twelvemonth erstwhile China was inactive nether lockdown and bought little lipid and state owed to a slowdown successful economical activity. However, the aforesaid cannot beryllium said present and Europe whitethorn look a much challenging wintertime this year. 

LNG (liquefied earthy gas) request from China is expected to prime up successful the 2nd fractional of the year, Birol said, adding that state imports to the state is simply a "key determiner" of request for earthy state markets. 

But Birol believed determination could beryllium a metallic lining — prices could beryllium milder than predicted and helium does not expect to spot a "big boom" of imports from China.

Global vigor marketplace participants are besides keeping a adjacent oculus on fractious negotiations betwixt the White House and Republicans implicit the U.S. indebtedness ceiling. Without a deal, the U.S. could look default successful aboriginal June though this is seen arsenic unlikely.

Negotiations were paused portion President Biden attended the G-7 acme successful Japan but he's owed to return to Washington, D.C. connected Sunday. The president said at a property league astatine the acme that he's "not astatine all" acrophobic astir the negotiations and that "we'll beryllium capable to debar a default and we'll get thing decent done."

Birol said a U.S. indebtedness default would origin lipid request and prices to drop, but agreed that specified a script was unlikely.

"I would debar giving you a precise number, but we could expect a important driblet successful the lipid terms if we spot specified a default." 

"This contented successful the United States volition beryllium dealt with and communal consciousness volition prevail. And I don't spot a large hazard for the planetary lipid markets. But of course, lipid markets are ever progressive with risks." helium added. 

Oil prices rebounded connected Friday from losses of much than 1% the erstwhile time arsenic investors turned cautiously optimistic that the risks of a U.S. indebtedness default were easing arsenic talks continued.

Another cardinal situation facing Europe's vigor markets is that their dependency connected Russian state has not been wholly eradicated and the outlook for proviso is uncertain.

Many countries successful the portion were forced into an vigor situation past twelvemonth erstwhile imports of Russian state were severely reduced.

Gas exports from Russian authorities vigor elephantine Gazprom to Switzerland and the EU fell by 55% successful 2022, the institution said successful January. Birol noted that if determination were further reductions successful state imports "for governmental reasons," Europe could again look "some challenges" successful the coming winter.

Birol believed G-7 and European countries volition not spell backmost into making immoderate agreements with Russia, adding that Russia's state communicative is "finished." "It's over," helium said.