German Energy Giant Crashes On Russian NatGas Supply Crunch, Triggering Bailout Talks

Shares in German gas and power utility Uniper crashed, plunging as much as a fifth on Thursday after the company slashed its outlook and sought a possible bailout from the German government after Russia reduced natural gas deliveries to Europe, according to Financial Times. 

Uniper said earnings before interest and taxes would be “significantly below” previous years, considering it only received 40% of the NatGas from Russia’s Gazprom PJSC.

The recent decline in NatGas flows to Europe forced Gazprom’s largest customer into covering purchases in spot markets at a massive premium versus its long-term NatGas contracts. At the same time, Berlin has capped the prices it charges households and businesses to control inflation, resulting in the utility losing tens of millions of euros a day (RBC and Citigroup analysts estimate the utility is losing 30 million euros per day) — and the risk of the utility company imploding. 

Bloomberg’s Javier Blas said Uniper’s NatGas losses could be a staggering 11 billion euros on a yearly basis if it has to continue buying on the spot market. He then pointed out that contagion risks could be emerging as other utilities are likely doing the same. 

One number to consider. Uniper probably is paying currently ~€30 million extra for the gas it’s buying in the spot market. Multiply that for 365 days: ~€11 billion. And that’s one single European utility. Now think about other big buyers of Russian gas. And start multiplying. https://t.co/6hKzinI7Pw

— Javier Blas (@JavierBlas) June 30, 2022

“Uniper currently procures substitution volumes at significantly higher prices,” Uniper said Wednesday, adding that since it “cannot yet pass on these additional costs, this results in significant financial burdens.”

The Economy Ministry confirmed that Berlin and Uniper are discussing “stabilization measures.” Uniper also said talks were underway with the government to secure liquidity which could include “equity investments” and an increase of a 2 billion euro credit facility with state-owned KfW bank. 

News that Uniper is in dire straits sent shares down as much as 23% to five-year lows. 

German Economy Minister Robert Habeck recently warned that declining NatGas from Russia could trigger a Lehman Brothers-like moment. 

Since mid-June, Gazprom reduced NatGas deliveries through Nord Stream to Europe by 40% and blamed the decline on Canadian sanctions over the war in Ukraine, preventing German partner Siemens Energy from delivering critical overhauled equipment for a compressor station on the pipeline. The crunch is also impacting France, Italy, and Austria as NatGas prices have jumped more than 40% in the past two weeks. 

John Musk, an analyst at RBC Europe Ltd., said the focus would be on contagion and if “other utilities with gas supply exposure” will be affected by the supply crunch. 

The situation may worsen when Nord Stream halts Nord Stream flows for ten days in July for planned maintenance. There are mounting concerns Russia might not resume the pipeline to full capacity after the outage. 

Habeck said last week Germany should prepare for further cuts. Europe’s largest economy has declared the second “alarm stage” of its NatGas-emergency plan, allowing utility companies to pass on higher power prices to industry and households to curb demand. 

“Europe should be ready in case Russian gas is completely cut off,” IEA head Fatih Birol told FT News last week.