site.btaExpensive Oil and Gas Will Reduce Consumption and Prices May Go Down, Expert Says

"A price of 129 US dollars for a barrel of Brent crude oil is very high indeed, and anything above that level will cause a market failure, a decline in consumption, which ought to restore the balance and bring prices down," Balkan and Black Sea Petroleum Association (BBSPA) Manager Valentin Kanev told BTA on Monday. "If international oil and gas prices remain high for a longer period of time, however, they will affect fuel prices in Bulgaria, pushing the price of petrol above the 3 leva/litre mark," Kanev added.

He noted that fuel price fluctuations in Bulgaria occur a couple of weeks after the corresponding price changes on the international market. As BTA was interviewing Kanev, the price of Brent crude oil exceeded 130 dollars per barrel for the first time since 2008, rising above the peak level of 128 dollars per barrel in 2012.

Kanev noted that oil refineries refrain from buying Russian oil at present because they fear possible EU sanctions. Banks do not support such purchases either. Kanev commented: "The situation is becoming ever more complicated. The Black Sea is acquiring the status of a high-risk zone. The situation depends directly on the war. If the war goes on like it has been going on up until now, prices may skyrocket."

Asked whether energy prices may fall abruptly if the war in Ukraine ends soon, Kanev said that in this case prices should settle, particularly if oil supplies normalize. The Ukraine conflict apart, the world economy is recovering from the effects of the COVID-19 pandemic, which means growing consumption and rising prices. The post-pandemic recovery process and the war have a combined effect on the market, the expert argued.

Discussing the soaring gas prices in Europe, the BBSPA chief said the prices have settled at a rather high level. For the time being, Russian gas is being supplied to Europe without any problem, Kanev said. He expects that not all Russian banks will be barred from the SWIFT financial messaging system and sanctions will not be imposed on Russian gas because the consequences would be grave. Asked whether Europe can give up on Russian gas altogether, he said that this is unlikely at present. "Such an option might be considered in principle, but the European countries are not yet ready for a complete ban on the import of Russian gas because this is related to limiting consumption. If it happens right away, it will push prices further up because many manufacturing businesses cannot do without gas."

Not even gas from Azerbaijan can fill the gap if supplies from Russia are interrupted, Kanev said. "Azeri gas can make up for the loss in part, not in full," he argued.

Concerning upcoming negotiations between Sofia and Russia's Gazprom Export on the long-term agreement to supply Russian gas to Bulgaria, Kanev said that the Russians will face strong competition in company-to-company negotiations. There are already major suppliers of gas from Azerbaijan. An LNG terminal will certainly be built at the Greek port of Alexandroupolis because the EU has already provided the money. The terminal is to go into operation in 2023. The construction of the Greece-Bulgaria gas interconnector is to be completed very soon. "So there will be strong competition from now on in the negotiations between companies because diversification is real, which is good," Kanev said.