Lending markets

EU rushes to help industry as Russian gas shutdown shakes markets

  • Gas prices in Europe up around 400% compared to a year ago
  • EU states rush to support struggling power companies
  • Disruptions hamper EU efforts to fill storage
  • EU denounces Moscow’s weaponized gas, Russia blames sanctions

LONDON/OSLO, Sept 5 (Reuters) – Gas prices in Europe jumped, its share price tumbled and the euro tumbled on Monday after Russia stopped pumping gas through a major supply route , sending another economic shockwave through the European Union as it struggles to recover. of the pandemic.

EU governments are rushing through packages worth billions of dollars to prevent power companies from being crushed by a cash crunch and to protect households from soaring bills, after Gazprom, Russian state-controlled (GAZP.MM), said it would stop pumping gas through the Nord Stream 1 pipeline due to a fault.

Europe has accused Russia of militarizing energy supplies in retaliation for Western sanctions imposed on Moscow following its invasion of Ukraine. Russia says the West has launched an economic war and the sanctions have caused gas supply problems.

Join now for FREE unlimited access to Reuters.com

A host of European electricity distributors have already collapsed and some large generators could be threatened, hit by caps that limit the price increases they can pass on to consumers or caught off guard by hedging bets, prices of gas are now 400% higher than a year ago.

“It had the ingredients for a kind of Lehman Brothers of the energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday, referring to the US bank that collapsed in 2008 and heralded the financial crash. global.

Finland aims to offer 10 billion euros ($10 billion) and Sweden 250 billion Swedish krona ($23 billion) in liquidity guarantees to their power companies. Germany, more dependent than most EU states on Russian gas, has offered a multi-billion euro bailout to power utility Uniper (UN01.DE). Read more

“The government program is a last resort financing option for companies that would otherwise be at risk of insolvency,” Finnish Prime Minister Sanna Marin said.

Utilities often sell electricity in advance to guarantee a certain price, but must keep a “minimum margin” deposit in case of default before supplying the electricity. The required margin deposit has increased with the spike in electricity prices, leaving companies struggling to find cash to cover the required margin.

The benchmark gas price rose 35% on Monday and more than 400% on the year, after Russia said on Friday that a leak in Nord Stream 1 equipment meant it would remain closed beyond from last week’s three-day maintenance shutdown.

European financial markets were reeling from the news. The euro fell to a 20-year low and European stocks fell. Read more

Nord Stream 1, which passes under the Baltic Sea to Germany, historically supplied around a third of the gas Russia exported to Europe, although it was already operating at only 20% capacity before the shutdown last week’s maintenance.

“Gas supply problems have arisen because of the sanctions imposed on our country by Western states, including Germany and Britain,” Kremlin spokesman Dmitry Peskov said on Monday. “There are no other reasons leading to supply issues.”

EU politicians say Russia is using a pretext to stop supplies.

EMERGENCY PLANS

Russia also sends gas to Europe via a pipeline through Ukraine, another important route. But those supplies have also been cut during the crisis, leaving the EU scrambling to find alternative supplies to fill gas storage facilities for the winter.

Several EU states have triggered emergency plans that could lead to energy rationing and stoke fears of recession, with inflation soaring and interest rates rising.

Some energy-intensive industries in Europe, such as fertilizer makers and aluminum producers, have already cut production. Other industries, already struggling with chip shortages and logistical bottlenecks, are facing soaring fuel bills.

“Supply is hard to come by and it’s getting harder and harder to replace every bit of gas that doesn’t come from Russia,” said Jacob Mandel, senior commodity partner at Aurora Energy Research.

Energy ministers from EU countries are due to meet on September 9 to discuss options to curb soaring energy prices, including gas price caps and emergency credit lines for energy market players, according to a document seen by Reuters. Read more

German Chancellor Olaf Scholz said on Sunday that Germany, the EU’s economic powerhouse, was preparing for a complete shutdown of gas supplies.

Germany is in phase two of a three-stage emergency gas plan. Phase three would see some rationing of industry. Read more

In the race for alternative supplies, Germany is installing temporary liquefied natural gas (LNG) terminals as a stopgap while it builds permanent facilities, so it can ship gas from further afield. Read more

“There are a lot of possibilities to replace this (Russian) gas with LNG imports at the moment, but when the weather gets colder and demand starts to pick up in winter in Europe and Asia, there is no only a limited amount of LNG that Europe can import,” Mandel said.

The global LNG market was already stretched as the global economy sucked up supplies during the post-pandemic recovery. The Ukrainian crisis has increased demand.

Norway, a major European producer, has pumped more gas into European markets but cannot fill the void left by Russia.

Klaus Mueller, chairman of the German Federal Network Agency’s energy regulator, said in August that even if German gas reserves were 100% full, they would be empty in 2.5 months if Russian gas flows were completely interrupted.

German storage facilities are now around 85% full, while facilities across Europe reached a target of 80% last week.

Join now for FREE unlimited access to Reuters.com

Reporting by Susanna Twidale in London, Nora Buli in Oslo, Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki; Written by Edmund Blair; Editing by Mark Potter and Carmel Crimmins

Our standards: The Thomson Reuters Trust Principles.