Sweden will provide emergency liquidity support to power producers as the prime minister warns that Russia’s decision to stop supplying gas to Europe could put the country’s financial system under strain. seriously straight.
Magdalena Andersson said on Saturday that the government will provide hundreds of billions of kroner funding to power producers, who have seen the amount of collateral they have to post on exchange bubbles to cope. with rising gas and electricity prices and increasing volatility.
EU energy ministers will also consider taking steps to ease liquidity shortages for energy companies across the bloc at an emergency meeting on Friday, according to two officials briefed on the matter. discussions.
Andersson warned that, if left unchecked, the growing demand for collateral from power producers could cause disruption through the main Nasdaq clearing market in Stockholm and in the worst case scenario. would trigger a financial crisis.
Her comments come after Russia said on Friday that it would no longer supply gas via the Nordstream 1 pipeline. That announcement came after the energy market closed for the weekend.
“Yesterday’s announcement not only risks leading to a ‘winter of war’ but also threatens our financial stability,” said Andersson, standing with the financial regulator, the governor of the bank. Sweden’s central bank and finance minister during an emergency press conference on Saturday.
Finland’s Finance Minister Annika Saarikko said on Twitter that her country would also take action. “Shared concerns. Similar preparatory works are also underway in Finland,” Saarikko tweeted.
The dramatic actions underline the seriousness of the situation facing Europe as it tries to secure enough energy before winter and try to avoid spreading suffering among power producers.
After surging to all-time highs eight days ago, gas and electricity prices have cooled slightly this week, with the European benchmark gas contract and German electricity both down about a third – although they remain about 10 times the historical level. But Nord Stream 1’s extended closing could increase volatility and increase prices when trading reopens on Monday.
Officials in Brussels are working on a number of possible ways to help energy companies, including emergency liquidity assistance, two officials said. One said margin calls are getting “too big” for power producers.
Other measures could include capping electricity or gas prices and ways to decouple gas and electricity markets before long-term reform. “The Russians are going to play with us and we are not well equipped to face that,” said the second official.
The big problem of the European energy market
Many European energy companies are benefiting from the price increases, but there are wide disparities across the industry.
Companies that produce gas or generate electricity with renewable or nuclear energy – where input costs do not increase – will reap large profits. But those who depend on gas for electricity production are more likely to face difficulties – especially if they have been cut off from Russian supplies.
The fact that companies have to apply for more collateral doesn’t mean that the deals or hedging are unprofitable, but their positions – often related to gas or energy supplies to households. homes and businesses – has quickly become much more expensive.
Companies are struggling to raise short-term loans fast enough, leading to the risk of a cash squeeze.
Jakob Magnussen, credit analyst at Danske Bank, said the big problem for power plants is the need for short-term funding.
As a hedge, their sales generators will often short sell electricity futures contracts until they actually produce and sell electricity to the market, helping to secure the price they will receive. .
However, electricity prices have risen so rapidly in recent weeks that futures paper losses have skyrocketed, requiring large amounts of additional collateral to be listed on exchanges. Translate.
“Margin calls are really booming right now, it’s especially a problem for smaller utilities,” Magnussen said. “Once the contracts expire and the utility companies sell the electricity, they get their money back, but a lot of additional short-term funding is needed in the meantime and many banks may be reluctant to increase the level rapid exposure to the field.”
“We are not afraid of Putin’s decisions, we ask Putin to honor their contract, but if they do not honor their contract, we are ready to react,” said Paolo Gentiloni, economic commissioner of the Russian Federation. EU, told reporters Saturday in reported comments. newswires.
Jean Francois Lambert, founder of Lambert Commodities and former head of commodity trade finance at HSBC, said other countries are likely to intervene in their energy markets.
“The crisis is moving into the next phase. If one of the major energy companies collapses, there could be a domino effect,” he said. “The call for liquidity is so great that maybe one day we have a problem that could harm the whole market.”
Although the threat of contagion to the broader financial sector has been limited, governments need to act to prevent energy markets from “freezing,” he added.
Andersson said that Sweden’s support would apply to all Nordic and Baltic players, and would need approval from the Swedish parliament’s finance committee on Monday.
“We need to isolate this in a market so it doesn’t infect the financial sector,” said Stefan Ingves, governor of Riksbank, Sweden’s central bank.
Swedish authorities say they don’t see an immediate risk to financial stability, but are concerned that companies with other solvents may have trouble finding enough liquidity, causing an effect potential ripple effects.
“Russia is waging an energy war against Europe to divide us. But we will not let Putin succeed,” Andersson said.
Andersson’s comments come a week before parliamentary elections in Sweden with polls showing a tight result. She said her center-left government was ready to act, as it did for the Covid-19 pandemic.
Erik Thedéen, head of the Swedish Financial Supervisory Authority, said electricity prices in Sweden have increased 11-fold in the past year, leading to a spike in demand for collateral.
He added that without liquidity support, power producers could face bankruptcy and huge losses that could “shake up” the clearinghouse. “It’s under a lot of stress,” he said.
Lambert said the situation is not yet a financial crisis. “The big banks in Germany, France, Italy and Spain can accept this. But if one of their big clients traps them in a liquidity squeeze then you could see all the banks pull out,” he said.
In July, the German government agreed to a €15 billion rescue package for Uniper, Europe’s largest buyer of Russian gas, and said it would take a 30% stake in the company. It has lost tens of millions of euros a day since Gazprom first cut off gas supplies to Germany through Nord Stream earlier this year.
Late last month Uniper asked for an additional 4 billion euros as soaring gas prices burned through the company’s cash reserves. Uniper, majority owned by Finland’s Fortum, said it had withdrawn a 9 billion euro line of credit from state development bank KfW.
Fortum warning on monday that its collateral requirements increased by 1 billion euros to 5 billion euros last week and that defaulting by a smaller company would cause “serious disruption to the Nordic power system” .
Additional reporting by Guy Chazan in Berlin
