Uniper has received billions in financial aid from the German government as a result of surging gas and electric prices following Russia’s war in Ukraine.
The German government on Wednesday agreed to the nationalization of utility Uniper as it strives to keep the industry afloat in the wake of a worldwide energy crisis.
Having already accepted in July to bail out the major gas importer with a 15 billion euro ($14.95 billion) rescue deal, the state will now buy out the 56% stake of Finland’s Fortum for a 0.5 billion euros. The German state is set to own around 98.5% of Uniper.
“Since the stabilisation package for Uniper was agreed in July, Uniper’s situation has further deteriorated rapidly and significantly; as such, new measures to resolve the situation have been agreed,” Fortum announced in a statement on Wednesday morning.
Uniper is Germany’s largest importer of gas, and has been squeezed by vastly reduced gas flows from Russia, which have sent prices soaring.
Russian state-owned energy giant Gazprom earlier this month indefinitely halted gas flows to Europe via the Nord Stream 1 pipeline, a move Uniper CEO Klaus-Dieter Maubach told CNBC would exacerbate the company’s struggles.
Fortum will deconsolidate Uniper as of the third quarter of 2022, the company said Wednesday, while Fortum’s 4 billion euro loan to Uniper will be repaid and the Finnish company will be released from a 4 billion euro parent company guarantee.
“Under the current circumstances in the European energy markets and recognising the severity of Uniper’s situation, the divestment of Uniper is the right step to take, not only for Uniper but also for Fortum,” said Fortum CEO Markus Rauramo.
“The role of gas in Europe has fundamentally changed since Russia attacked Ukraine, and so has the outlook for a gas-heavy portfolio. As a result, the business case for an integrated group is no longer viable.”
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European stocks advanced on Monday, following a positive trend set at the end of last week and overnight in Asia-Pacific markets.
The pan-European Stoxx 600 climbed 1.1% by early afternoon, with retail stocks jumping 3.6% to lead gains as all sectors and major bourses traded in positive territory.
European stocks took heart last week from the hawkish tone struck by the European Central Bank on monetary policy, as policymakers look to rein in record high inflation in the 19-member euro zone. The momentum continued on Monday.
Global markets are gearing up for the latest reading of U.S. inflation, with the August data set to be released Tuesday.
The report is one of the last pieces of data on inflation the U.S. Federal Reserve will see ahead of its September meeting, where the central bank is expected to deliver its third consecutive 0.75 percentage point rate hike in an effort to combat high inflation.
Fed Chair Jerome Powell reiterated last week that he is “strongly committed” to bringing down inflation.
U.S. stock futures climbed on in premarket trade on Monday, while shares in the Asia-Pacific rose in overnight trading on improved risk sentiment. Mainland China, Hong Kong and South Korea markets are closed for a holiday.
European energy prices surged after Russia shut down natural-gas flows through a major pipeline, threatening to add to economic woes for businesses and households across the continent.
Natural-gas futures in northwest Europe, which reflect the cost of fuel in the wholesale market, jumped more than 30% in early trading Monday. They remain below the all-time high recorded in late August.
State-controlled Gazprom PJSC extended a halt to flows through Nord Stream late Friday. Moscow blamed the suspension on technical problems. European governments described it as an economic attack in retaliation for their support of Ukraine.
Over the weekend, governments in Sweden and Finland offered billions of dollars of guarantees to utilities to prevent a meltdown in energy trading. Officials fear the loss of imports through Nord Stream could lead to a further leap in power prices and saddle utilities with cash payments to energy trading exchanges that they may struggle to meet. A wave of failed payments could undermine financial stability, officials said.
“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Economic Affairs Minister
Mika Lintilä
said Sunday.
Swedish and Finnish government officials worked through the weekend on programs designed to make sure electricity producers can meet exchange payments known as margin calls. Stockholm is home to
Nasdaq
Clearing AB, a subsidiary of
Nasdaq Inc.
that processes most derivative trades in the Nordic power market, which includes Finland and the Baltic countries.
Under the Swedish plan, the government would provide guarantees to eligible companies, which could then use the guarantees to borrow from banks and pay the exchange clearinghouse. The Swedish government would have license to extend up to 250 billion kroner, or $23 billion, in guarantees, said a finance-ministry official.
The Finnish government plans to offer 10 billion euros, or $10 billion, in guarantees.
Nasdaq Clearing spokesman David Augustsson said the measures would help the power market act in an orderly manner Monday. “This is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability,” he said.
Last week, European Energy Exchange AG, the main European venue for power trading outside the Nordics, said Germany and other European Union members should help companies fund margin payments. A spokesperson didn’t respond to requests for comment on Sunday.
Russia’s state-controlled Gazprom PJSC extended a halt to flows through the Nord Stream pipeline late Friday.
Photo:
HANNIBAL HANSCHKE/REUTERS
Armed with the guarantees, utilities and other energy companies would find banks more willing to lend money to cover margin payments, the Swedish official said. The Swedish parliament will vote on the program Monday and it would take effect the same day if approved. One concern is that the clearinghouse itself might default, the official said.
“This threatens our financial stability. If we don’t act soon it could lead to serious disruptions in the Nordics and Baltics,“ Swedish Prime Minister Magdalena Andersson said Saturday at a news conference outlining the plan. “In the worst-case scenario we could fall into a financial crisis,” Ms. Andersson added.
When utilities agree to deliver gas or power, they lock in prices by selling futures contracts. Exchanges charge one payment, known as initial margin, when trades are placed to collect collateral. They then call for or return money each day depending on whether the position gains or loses value.
As prices rise, utilities’ short positions shed value and the companies pay the exchange. They recoup the money when they deliver gas or power, but the difference in timing has led to massive outflows of cash that some firms have struggled to fund. At times a vicious cycle has emerged in which extreme price moves boost margin calls, prompting companies to bail out of trades and sparking more volatility.
“No one’s got the money to pay to trade,” said Justin Colley, an analyst at Argus Media. “Putting up these margin payments every day is just causing problems for everyone—not just the small companies, but also the big companies, the national utilities.”
The guarantees could add to the mounting cost for governments of aiding households and businesses through a historic rise in energy prices largely caused by Moscow’s move to cut gas exports. On Sunday, Germany unveiled its third energy relief package this year, worth €65 billion, to shield consumers.
European energy ministers are due to hold an emergency meeting Friday to discuss options for dealing with skyrocketing electricity prices, such as a possible price cap for non-gas sources of power generation.
They will also consider energy companies’ cash concerns. The Czech Republic, which holds the EU’s rotating presidency, is expected to put forward several options for ministers to consider, including the temporary suspension of power derivatives markets and a European credit line for energy market participants, an EU diplomat said.
European gas and power prices have been wildly volatile. They shot to records in late August before slumping last week after the European Union said it would change the structure of the power market to bring down prices for consumers and businesses. Nordic and Baltic prices have been especially turbulent, in part because a drought curbed hydropower generation in Norway.
Tom Marzec-Manser, gas analyst at ICIS, said he expected gas and electricity prices to rise again Monday in response to Gazprom’s shut-off. “Meeting demand, whatever that might turn out to be, is going to be that much harder,” he said.
To a certain extent, energy markets were already girding for Russia to completely cut off gas supplies. Gazprom had reduced Nord Stream flows to 20% capacity in the weeks before the shutdown.
Some factors could act to bring prices down after an initial leap, traders and analysts said—including the action taken by Nordic governments. Weather forecasts suggest there might be greater power generation from wind farms, reducing demand for gas.
Uniper,
one of the two biggest buyers of Russian gas in Europe until recently, said last week it had fully drawn down a €9 billion credit line from German state lender KfW. The company said it had asked to borrow an extra €4 billion to make margin payments and buy gas to make up for lost deliveries from Gazprom.
LONDON — European markets retreated slightly on Monday as fears of more aggressive interest rate hikes from the Federal Reserve returned to the fore.
The pan-European Stoxx 600 slipped 0.3% in early trade, with autos falling 0.8% to lead losses while health care stocks added 0.4%.
Shares in Asia-Pacific were mixed on Monday as caution prevailed, though Chinese markets rose after China’s central bank cut its benchmark lending rates.
U.S. stock futures fell in early premarket trade after the S&P 500 snapped a four-week winning streak on Friday, as Wall Street looks ahead to Fed Chairman Jerome Powell’s Friday comments on inflation at the central bank’s annual Jackson Hole economic symposium.
“We expect the market to approach the Fed’s Jackson Hole meeting fearing a hawkish message that could drive a sharp risk-off move. However, we think the message will be more nuanced, and possibly even reassuring,” said Steve Englander, head of global FX research and North America macro strategy at Standard Chartered.
“For the Fed, getting inflation down towards targets is non-negotiable. Chair Powell is likely to state that the Fed will raise rates as far as it takes, and for as long as it takes, to lower inflation.”
There are no major corporate earnings or economic data releases due out of Europe on Monday.
Germany on Friday agreed to bail out Uniper with a 15-billion-euro ($15.24 billion) rescue deal, as the embattled energy company becomes the first major casualty of Russia’s natural gas squeeze.
The bailout package will see the German state take a 30% equity stake in Uniper.
The energy company was the first in Germany to sound the alarm over soaring energy bills and submitted a bailout application for government support earlier this month. As Germany’s biggest importer of gas, it has been hit hard by vastly reduced flows via pipelines from Russia, which has sent prices soaring.
In a statement, Finnish majority-owner Fortum said Uniper and the German government had agreed on a “comprehensive stabilisation package” to provide it with financial relief.
“We are living through an unprecedented energy crisis that requires robust measures. After intensive but constructive negotiations, we found a solution that in an acceptable way met the interest of all parties involved,” Fortum’s President and CEO Markus Rauramo said in the statement.
“We were driven by urgency and the need to protect Europe’s security of supply in a time of war.”
Russian gas supplies to Europe have fallen since its unprovoked invasion of Ukraine earlier this year — and the subsequent sanctions placed on Moscow by the West.
Uniper has received only “a fraction of its contracted gas volumes” from Russian gas giant Gazprom since mid-June, according to Fortum, meaning it has had to buy gas at much-higher spot market prices. This has had severe consequences for Uniper’s financial position, Fortum added.
BERLIN—Germany is now ready to stop buying Russian oil, clearing the way for a European Union ban on crude imports from Russia, government officials said.
Berlin had been one of the main opponents of sanctioning the EU’s oil-and-gas trade with Moscow.
However on Wednesday, German representatives to EU institutions lifted the country’s objection to a full Russian oil embargo provided Berlin was given sufficient time to secure alternative supplies, two officials said.
The German shift increases the likelihood that EU countries will agree on a phased-in embargo on Russian oil, with a decision possible as soon as next week, diplomats and officials say. However, how quickly the bloc ends its Russian oil purchases, and whether it also uses measures such as price caps or tariffs, is still being negotiated. The U.S. is pressing its European allies to avoid steps that could lead to a protracted increase in oil prices.
Europe’s debate on banning Russian oil has shifted decisively in recent days with Germany and some other countries taking practical steps to replace Russia with other suppliers. Some member states remain cautious about the economic impact of an oil embargo, including Hungary, Italy, Austria and Greece, diplomats say. All 27 EU governments must approve an oil ban.
The oil moves come as EU nations scramble to help member states Poland and Bulgaria make up for a natural gas shortfall after Russia stopped deliveries this week in reaction to what it said was the two countries’ refusal to pay for imports in rubles. The Kremlin demands EU buyers pay into special bank accounts where deposits would be converted from euros and dollars into rubles.
The EU pays state-controlled Russian firms around €1 billion, equivalent to $1.05 billion, a day for energy, according to estimates by Bruegel, a Brussels-based think tank. Critics have said that these funds are bankrolling Russian President
Vladimir Putin’s
regime and its war in Ukraine.
The consequences of harsh economic sanctions against Russia are already being felt across the globe. WSJ’s Greg Ip joins other experts to explain the significance of what has happened so far and how the conflict might transform the global economy. Photo Illustration: Alexander Hotz
On Thursday, Gazprom PJSC, Russia’s biggest gas producer, said profit soared in 2021 on the back of higher gas and oil prices.
Senior officials from EU member states discussed oil sanctions at length on Wednesday and the European Commission, the EU’s executive body, will hold further discussions with EU countries in coming days before presenting a proposal probably early next week, officials and diplomats say.
U.S. Treasury Secretary
Janet Yellen
said last week that a full European oil embargo on Russia would push up international oil prices, hurting a fragile global economy, and might “actually have very little negative impact on Russia,” which would benefit from higher oil prices on its remaining exports. She suggested Europe could keep buying oil while restricting Russia’s access to payments, echoing talk in Europe of making payments into an escrow account.
The EU imports between 3 million and 3.5 million barrels of oil a day from Russia, sending just under $400 million in payments daily, according to Bruegel. That amounts to some 27% of EU oil imports. Oil and gas revenues accounted for 45% of Russia’s federal budget in 2021, according to the International Energy Agency.
Many companies have been self-sanctioning, according to analysts and traders, avoiding trade in Russian oil over reputational concerns and the risk that the Western pressure campaign could soon encompass Moscow’s energy exports. That is already contributing to a sharp fall in Russian oil exports, according to the IEA.
EU officials designing the next sanctions proposals have to factor in that it will take some European oil refineries time to adapt to receive non-Russian crude. They also acknowledge that for countries such as landlocked Hungary, which receives its Russian oil through pipelines, adjusting to a Russian oil embargo will be complex.
The bloc is considering the option of combining a gradual phaseout of oil purchases with more immediate measures to reduce demand or cut payments to Moscow, such as a price cap or a tariff on oil imports. Another possibility is to phase out shipped oil purchases quickly and pipeline deliveries more slowly.
“There are all sorts of things that we’re running through,” said a senior EU official. “The aim is to hit the Russians as hard as possible while at the same time minimizing” the cost.
While Germany has swung behind the idea of phasing out Russian oil purchases, Berlin remains skeptical of price caps, tariffs and proposals to put Russia’s oil payments into escrow accounts.
German officials doubt that Mr. Putin would maintain oil deliveries if the EU unilaterally cut the price it pays, and they caution that Russia could easily sell its oil to other customers such as India and China instead of accepting a lower European price.
Berlin’s change of mind on oil came after it struck a deal with Poland that will enable Germany to import oil from global exporters via the Baltic Sea port of Gdansk, officials said Wednesday.
The Polish port is located close to the PCK oil refinery in Schwedt, Germany, which is controlled by the Russian oil giant
Rosneft
and receives crude via a Russian pipeline known as Druzhba, Russian for friendship.
The Gdansk port infrastructure, which is equipped to receive oil supertankers, is connected to the Russian pipeline with a separate link operated by Poland. This means oil imports to Gdansk could be immediately channeled through the pipeline to the Schwedt refinery, replacing Russian supplies, government officials said.
Oil imports to Gdansk, Poland, could be channeled to the Schwedt refinery, replacing Russian supplies.
Photo:
Michal Fludra/Zuma Press
The Schwedt refinery was the biggest obstacle to Germany accepting a ban on Russian oil imports because thousands of jobs in the region depend on it and there was no alternative supply to feed it until now, the officials said.
The Polish deal was necessary because the German port closest to the refinery, Rostock, doesn’t have the capacity to receive supertankers. In addition, Germany’s railways no longer operate oil wagons. The landmark deal was announced on Wednesday by German Economy Minister
Robert Habeck
during a visit to Poland.
Some 12% of Germany’s oil consumption relies on Russian imports, down from 35% before the war, Mr. Habeck said in a video statement posted on his ministry’s social media. He said Germany was now ready for the possibility that Rosneft would stop channeling oil, a scenario he said would no longer spell disaster for the German economy.
“Rosneft is a Russian state company and they have no interest in processing non-Russian oil,” Mr. Habeck said.
Should Rosneft refuse to process non-Russian oil imports, Germany could put the refinery under state management under laws protecting strategic assets. Berlin has already assumed stewardship of the main Russian gas-trading hub in Germany, a subsidiary of Russia’s state-controlled Gazprom.
Write to Bojan Pancevski at bojan.pancevski@wsj.com, Laurence Norman at laurence.norman@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com