Dusseldorf In view of the horrendous energy prices, other energy companies are receiving billions in state funds, as was announced on Tuesday. The Finnish state-owned company Fortum – majority shareholder of the German gas group Uniper – is receiving bridge financing of 2.35 billion euros from its own state. Energy supplier Axpo receives a credit line of four billion Swiss francs from Swiss money.
The background is the high exchange prices for energy sources such as electricity and gas. On Monday, the gas price at the important trading point TTF was at times 37 percent higher than last Friday. The price increase was triggered by an announcement by Russia that it would no longer supply gas to Europe through the Nord Stream 1 pipeline. Most recently, the gas price leveled off at around 230 euros per megawatt hour. That is more than seven times as much as a year ago.
Industry experts are worried about the situation on the energy markets. Jochen Stanzel, chief market analyst at trading house CMC Markets, observes a growing fear of a Lehman-style crisis in the European energy sector. Behind this is the concern that, as with the US bank Lehman Brothers, which went bankrupt in 2008, one major default could lead to the next, a chain reaction that could then cause existential difficulties for the entire industry.
The reason for the dangerous situation is not the actual lack of gas. Instead, it is about large sums of money that electricity and gas traders transfer back and forth every day. The higher energy prices rise, the higher these sums are. More and more corporations simply lack the money to participate in trading. The Norwegian energy group Equinor warns that the European energy trade could be worth a sum of 1.5 trillion dollars.
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The large sums of money, called margins, are a form of deposit. They arise when energy company A agrees with energy company B to deliver gas at a certain price in one month. If the market price for gas doubles between the conclusion of the contract and the delivery date, company B must fear that the gas will no longer be delivered at the agreed, low price.
>> Read also: That means the delivery stop by Nord Stream 1 now for Germany
In order to allay this fear for company B, company A transfers enough money to be able to spontaneously buy the agreed amount of gas on the market if necessary. When company A finally delivers as promised, B returns the emergency money to it. The sum of all of these emergency funds currently deposited is the $1.5 trillion Equinor is talking about.
High gas price could trigger forced liquidations
The money that two trading partners send back and forth in the energy market is therefore usually not lost. Company A has no costs because it gets the money back as soon as it has supplied gas or electricity. However, this only applies as long as company A has enough money in stock to be able to give it to company B for a certain period of time.
If energy prices rise too quickly and too high, many companies will lack the necessary liquidity. This is exactly what is happening more and more often. The problem is that when prices rise, the exchange, which stands between the trading partners, demands higher margin payments from the energy provider.
If the dealer cannot pay, he will be forced into liquidation. This means that the contract with the buyer is dissolved and the dealer owes the buyer the difference to the current market price. This creates a real cost problem for companies.
But that’s not all: Retiring traders also make the situation worse for other market participants. Because if they can no longer trade, the supply of electricity and gas will fall – and prices will continue to rise. This also increases the required margin payments.
Many companies are already borrowing money from banks. The concern: If energy traders actually go bankrupt, the lenders would not get their money back. A Lehman-like crisis would then be imminent. That’s why other states are now adding money.
More: Internal paper: Brussels wants to put pressure on Russia with a gas price cap