Russia's war against Ukraine has triggered a peak in oil and gas prices and threatens to tip a number of European economies that are heavily dependent on Russian gas into recession.
It has also, as became clear last week, pushed one of Europe's largest energy companies to the brink.
Uniper, Germany's largest buyer of Russian gas, issued a profit warning last week, withdrew its financial forecasts for the year and said it was in talks with the German government about a possible rescue service. The company's share price, which has fallen by 63% since the turn of the year, certainly seems to be pricing in that case.
Uniper has been forced into this position by the sudden rise in gas prices.
Most well-run energy companies try to buy gas in advance to have a secure delivery.
But Russia's recent decision to reduce the amount of gas brought to Germany to just 40% of normal levels has forced the company to buy gas on the “spot” market. It automatically incurs extra costs for the company because the spot prices are higher than the prices one would have previously agreed with the Russian state-owned gas supplier Gazprom.
In the same way, Uniper is said to receive only 40% of the gas from Gazprom that it is supposed to receive, and analysts at the investment bank Credit Suisse told customers last week that Uniper had to spend up to 40 million euros daily on the gas market. Analysts at JP Morgan estimate the figure at almost 20 million euros.
Its problems have been exacerbated by the fact that these extra costs have not been passed on to customers – despite the fact that, according to Germany's national gas contingency plan, this was to be expected.
Germany moved to 11 days ago second phase of the planaccording to which suppliers are usually allowed to pass on higher costs to consumers.
Berlin has clearly calculated that the cost of providing Uniper financial support will be less painful than the economy that would follow if households and companies were ordered to waste more of their energy.
German Chancellor Olaf Scholz more or less confirmed this when he told German television on Sunday evening: “If the heat bill suddenly rises by a couple of hundred euros, then this is an amount that many will not really be able to charge. This is social explosive. “
Uniper grew out of the dysfunctional energy policy pursued by Scholz's predecessor, Angela Merkel.
It was previously part of E.ON, still the owner of a major UK energy supplier to households, which was squeezed into the red following Merkel's knee-jerk decision to decommission the country's nuclear power plant following the Fukushima disaster in Japan in 2011.
This forced it and another large German power group, RWE – former owners of British companies such as Npower and Thames Water – into restructurings.
Uniper was separated from E.ON as a separate company that owns its former parent companies' older fossil fuel operations. With a production capacity of 34 gigawatts, it is one of the world's largest power generators, with the United Kingdom one of its largest markets.
It owns seven power plants in the UK, including Ratcliffe-on-Soar in Nottinghamshire, one of the country's last remaining coal – fired power plants, and one of the UK's few gas storage facilities, Holford in Middlewich, Cheshire.
It also owns two of the UK's high-pressure gas pipelines and a re-gasification plant on the Isle of Grain that converts liquefied natural gas (LNG) back to natural gas.
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Interestingly, despite its apparent misery, Uniper has not yet begun to cut credit lines from state-controlled lender KfW, which is said to be worth up to € 2 billion.
Nevertheless, expectations of a rescue operation are building up, with speculation surrounding a rescue operation in line with the € 9 billion rescue operation that Berlin handed over to Lufthansa, the German airline, in the summer of 2020 in the wake of the pandemic.
The precipitation will spread widely. Apart from Uniper's assets in the UK, the biggest repercussions could be felt in Finland, as Uniper's largest single shareholder – with a share of almost 78% – is the Finnish energy giant Fortum.
It said last week that it has also offered credit lines and guarantees to Uniper. It is unlikely to be welcomed to see its share in Uniper diluted by the German government taking a shareholding.
However, it can have no choice but to accept such a result.
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