Bailout, recession becomes a new wrinkle of Europe’s energy crisis


The energy crisis in Europe is beginning to weigh on the growth of oil, gas and utilities on the continent.

Uniper, Germany’s struggling natural gas utility giant, recently Submission According to Fortum, Finland’s majority owner, an application for relief to the government after facing significant financial challenges.

For weeks, the company had been regularly discussing potential bailouts with the government, but recently warned that it needed to be bailed out “within a few days.” Uniper faced tremendous pressure after Russia began to reduce gas flow to Germany, the largest gas importer. Last month, energy giants received only 40% of Russia’s contract volume, so companies began looking for replacement volumes.

Marx Lauramo, Fortum’s President and Chief Executive Officer, said: “Next, we look forward to the German government implementing these tools quickly to stabilize the situation in the energy industry, especially Uniper, and discuss long-term solutions.”

Uniper has begun to use the gas it has stored during the winter since Moscow drastically reduced deliveries. As a result, the storage facility is only 58% used, up from just 60% last week.

Uniper logo
The logo of the German energy utility company Uniper SE is painted on March 10, 2020 at its headquarters in Dusseldorf, Germany. (ThiloSchmuelgen / Reuters)

Harald Seagats, vice chairman of the board of auditors, said utilities are reducing the amount of gas in their storage areas to ensure that customers receive electricity and to strengthen the liquidity requirements of Uniper. Said.

“Uniper can’t wait a few weeks, but it’s clear that he’ll need help in a few days,” he says. Said Bloomberg. “You can’t wait weeks to do something. It will have a big impact on employees as well as the company. The government said it wanted to avoid this situation, but it actually lost time. I can’t. “

With the latest developments, German industry is collapsing and economists predict that Europe’s largest economy could fall into recession.

“The impact of gas shortages on the German economy can be enormous. Not only is Germany one of the most industrialized countries in Europe, but its industry is also relatively energy-intensive, but gas prices. The price impact of the rise has arrived long before potential gas distribution, making it increasingly difficult for German companies to secure electricity and gas contracts, “Labbank’s global economic and market macros said. Strategist Eric Jean-Van Hahn writes. a Note..

According to the bank, its baseline scenario is forecast to shrink 0.2% in the third and fourth quarters and 0.22% annually in 2023.

ING is also in recession, even though May’s industrial output was slightly higher than expected. at this point, write in Carsten Brzeski, Global Head of Macro at ING, is concerned about how paralyzed the economy is in the area of ​​recession.

“Needless to say, at the moment, the outlook has more downside risks than upside risks,” Brzeski wrote.

“I think it’s time to delve into all these various estimates of the economic impact that Russia’s total ban on gas and oil could have on the economy.”

Other parts of Europe facing problems

In other European markets, multiple energy suppliers have been closed in the last 12 months.

In England 28 companies It has been closed since June 2021 due to the dramatic increase in the cost of wholesale gas that has caused companies to bleed. These entities were unable to raise customer prices due to the UK government’s energy price caps. This has moved about 2.6 million households, or about 9% of the UK’s population, to another power company.

In the Czech Republic, power company CEZ CP is demanding up to $ 3.04 billion to survive the storm.

Experts warn that Italy may witness a similar trend. Earlier this year, several Italian energy distributors shut down due to soaring electricity prices and stopped fulfilling their contracts.

In addition, the government Be imposed 10% storm profit tax on energy companies to fund a $ 4.9 billion package that provides inflation relief to businesses and consumers. Whether this will increase the financial burden on the sector remains to be seen towards the second half of 2022.

Despite the expectation that companies are filling their bottom line, Ecofin’s portfolio manager Michel Sznajer noted in a note that many companies are not making more money. However, they are passing on additional costs to their customers.

That said, ING analysts can set a price cap on energy prices by the government across the region, as in other jurisdictions where the UK, France, Hungary and Romania have retail or wholesale price limits. It states that it has a high sex. In addition, Portugal and Spain have introduced wholesale gas price caps on power plant consumption.

“Taxes on storm profits tend to reduce corporate profits and affect corporate stock valuations, but energy price caps are imposed by the government on utilities to protect consumers from soaring prices. Is the most terrifying tool you can do, “says ING experts. Said..

According to Bloomberg dataEuropean energy and utilities have accumulated over $ 1.7 trillion in debt to cover the cost of rising oil and gasoline prices, up 50% from before the coronavirus pandemic.

Europe’s overall energy crisis

According to a new study by Rystad Energy, Europe is ready to face a power crisis much sooner than expected, primarily due to Russia’s invasion of Ukraine, related sanctions and rising temperatures.

Industry observers are looking forward to winter as summer has already proven to be a difficult time as gas flows diminish and liquefied natural gas (LNG) cargo reaches capacity limits.

“In April, we expected the next European winter to be a tough time for consumers and governments. Our updated scenario storms Europe much earlier than probably previously thought. It shows that we are heading towards and are not ready for the turmoil that the region will bring, “said Vladimir Petrov, senior analyst at Ristad Energy. Research notes..

Sznajer also pointed out that “extremely hot and dry weather” has recently put pressure on hydropower as it joins the electricity market, where weather conditions are very tight.

“Usually in the summer, especially in the current climate, the UK is full of natural gas stores. Unfortunately, in the current climate, demand is higher than expected and is unusually high, so more. We have some restrictions on our storage opportunities, and we need more gas in the winter, “he said in a memo.

Experts warn that energy distribution cannot be ruled out as Europe is beginning to prepare for the harsh winter and prices are likely to rise accordingly.

Shell CEO Benvan Beurden spoke at the Aurora Spring Conference in Oxford. Said It may be necessary to consider its distribution before cold temperatures and snowstorms sink the continent.

“It will be a really tough winter in Europe. Some countries will do better than others, but we will all face a very significant rise in energy prices,” Van Baden said. He argued that the worst-case scenario is likely to include Europe’s need to distribute its energy use.

Britain was caught in a fierce heat wave this week and temperatures soared 40 degrees Celsius For the first time on record — cooling demand will escalate.

Andrew Moran


Andrew Moran covers business, economics, and finance. He has been a writer and reporter in Toronto for over 10 years and has signed Liberty Nation, Digital Journal and Career Addict. He is also the author of “Cash War”.