Energy utilities in Europe face a €1.5 trillion rush after Vladimir Putin shut down the Nord Stream pipeline to Germany

European energy companies need at least €1.5 trillion to cover the cost of their exposure to rising gas prices, Norwegian energy giant Equinor has estimated, and that doesn’t include companies in the UK.

Several countries are providing billions of euros in support to utilities who have been caught out by additional collateral payments on their businesses — known as margin calls, but Equinor’s estimate suggests such support accounts for only a fraction of the total bill.

The talk around margin calls and the mismatch between utilities’ apparent profitability and a brief but significant squeeze on their cash flow is inevitably reminiscent of the so-called credit crunch in the banking sector in 2008, the collapse of Lehman Brothers and bailouts of other banks.

Utilities often sell electricity up front to secure a certain price, but are required to deposit a “minimum margin” before delivering the power in the event of an outage.

This has skyrocketed with rising energy prices, largely prompted by Russia cutting gas supplies to Europe, leaving businesses struggling to find cash.

Helge Haugane, Equinor’s senior vice president of gas and power, told Reuters that in Europe excluding the UK, such margin calls were likely to have exceeded €1.5 trillion, squeezing market liquidity and causing trouble for a number of small and medium-sized companies .

“It’s a function of the price, it goes up and up,” Haugane said, adding that this also requires government intervention.

“The market can work a lot better than what it’s doing further out the curve now because people don’t have enough liquidity to play,” he said on the sidelines of an international gas conference in Milan.

Gas prices, which rose fivefold from a year ago in the wake of Russia’s invasion of Ukraine, rose further on Monday after Moscow indefinitely shut down the major Nord Stream 1 gas pipeline amid further western sanctions.


Russian President Vladimir Putin

Mr Haugane said he believes a widespread cut in demand is the only possible short-term solution to Europe’s energy crisis if Russia cuts all gas supplies.

He also said a European Union proposal to impose a price cap on imported gas and gas used to generate electricity would not solve the continent’s fundamental problem.

“If Russian volume comes to a complete halt, the demand reduction must be even greater than it has been so far, and no price cap or anything like that can solve the underlying problem,” Haugane said.

EU ministers will discuss a range of options at a meeting on Friday, including a price cap on imported gas, a price cap on gas used in power generation, or temporarily removing gas-fired power plants from the current EU electricity pricing system.

Proponents of the price cap say it would prevent some derivatives transactions to avoid margin calls, but Haugane was skeptical.

Demand reduction “is very hard political work for those who can do something about it…but there is no other solution in the short term”.

The EU in July asked its 27 member states to voluntarily cut gas requirements by 15% this winter, with the possibility of mandatory cuts if necessary. However, governments have been slow to reduce consumption. Energy utilities in Europe face a €1.5 trillion rush after Vladimir Putin shut down the Nord Stream pipeline to Germany

Fry Electronics Team

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