European think-tank: Azerbaijan can play pivotal role in EU energy security for years to come

ECONOMICS  15 November 2022 - 09:46

The measures proposed by the European Commission to deal with the energy crisis go in the right direction, Giovanni Sgaravatti, a research analyst at Bruegel, a European think tank specializing in economics, has said.

According to the researcher, increased solidarity through better coordination of gas purchases, through bilateral gas exchange agreements between EU countries in case of emergency, and renewed attention to reducing demand and improving energy efficiency in buildings are all positive developments, Trend reports.

"The creation of a temporary dynamic price corridor has not been detailed yet, but my understanding is that the idea behind is to establish a maximum price at which natural gas transactions can take place in the TTF [Title Transfer Facility] spot markets. By the term 'dynamic' I would expect it to vary along the price of other benchmarks (for example the Asian one). By "corridor" I guess it means that other gas trading hubs in the EU would be linked to the 'corrected' TTF spot price (set in the Netherlands). I believe that once the design of the dynamic price corridor is agreed upon, trading venues will have the task of implementing it," he said.

As Sgaravatti noted, these new measures are not expected to affect the supplies from Azerbaijan in any meaningful way. At the same time, Azerbaijan can play a significant role in the energy security of the EU for years to come, he added.

Quoting the Commission, the analyst said it is good that "the measure should allow for over-the-counter gas trades, not affect EU’s security of gas supply and intra-EU flows, not lead to an increase in gas consumption and not affect the stability and orderly functioning of energy derivative markets".

So, I expect that the tool will be designed so as not to aggravate the crisis for any EU country. However, those most vocal in opposing it are the countries whose (i) security of supply is not yet perfectly clear without Russian natural gas and (ii) have enough fiscal space to be able to use the market price signal to obtain the natural gas needed to meet their domestic demand. This is why Germany does not seem to like the system too much, while Italy has been a strong advocate," he explained.

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