Europe braces for energy market turmoil after Russian gas cuts

The governments of Sweden and Finland offered billions of dollars in guarantees to utilities to prevent a collapse in energy trading when markets open on Monday after Russia shut off natural gas flows through a major pipeline to Europe.

Traders, analysts and energy executives say gas and electricity prices – already at high levels – are likely to soar after state-controlled Gazprom PJSC extended the shutdown of flows through Nord Stream late on Friday. Moscow blamed the suspension on technical problems.

European governments described it as an economic attack in retaliation for their support for Ukraine. Officials fear that the loss of imports through Nord Stream could lead to further jumps in electricity prices and utilities with cash payments on energy trading exchanges that may struggle to match. A wave of failed payments could undermine financial stability, officials said.

“This had the ingredients for a kind of Lehman Brothers of the energy industry,” Finland’s Economic Affairs Minister Mika Lintilä said on Sunday.

Swedish and Finnish government officials worked through the weekend on programs designed to ensure power producers can meet exchange payments known as margin calls. Nasdaq Clearing AB, a subsidiary of Nasdaq, is located in Stockholm Inc.

which processes most derivatives trades in the Nordic electricity 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 foreign exchange clearing house. The Swedish government will be allowed to extend up to 250 billion kroner, or $23 billion, in guarantees, a finance ministry official said.

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 electricity market act in an orderly manner on Monday. “This is a period of extreme uncertainty and the addition of government liquidity guarantees will add an extra layer of stability,” he said.

Last week, the European Energy Exchange AG, the main European electricity trading venue outside Scandinavia, said Germany and other European Union members should help companies fund margin payments. A spokesman did not respond to requests for comment Sunday.

Russian state-controlled Gazprom PJSC extended the shutdown of flows through the Nord Stream pipeline late Friday.



Armed with the guarantees, utilities and other energy companies will find banks more willing to lend money to cover margin payments, the Swedish official said. Sweden’s parliament will vote on the program on Monday and it will come into effect the same day if approved. One concern is that the clearinghouse itself might go bankrupt, the official said.

“This threatens our economic stability. If we don’t act soon, it could lead to serious unrest in the Nordic countries and the Baltics,” Swedish Prime Minister Magdalena Andersson said Saturday at a news conference outlining the plan. “In the worst case scenario we could go into financial crisis,” Ms Anderson added.

When utilities agree to deliver natural gas or power, they lock in prices by selling futures contracts. Exchanges charge a payment, known as initial margin, when trades are placed to collect collateral. They then request or refund money each day depending on whether the position gains or loses value.

As prices rise, utilities’ short positions lose value and companies pay the price. They recoup the money when they deliver gas or electricity, but the timing difference has led to huge cash outflows that some companies have struggled to finance. At times a vicious cycle has emerged in which extreme price movements amplify margin calls, prompting companies to bail out of trades and sparking more volatility.

“No one has the money to pay to trade,” said Justin Colley, an analyst at Argus Media. “Making these margin payments every day just causes problems for everybody—not just the small companies, but the big companies, the national utilities.”

The guarantees could add to rising costs for governments helping households and businesses through a historic surge in energy prices caused in large part by Moscow’s move to cut natural gas exports. On Sunday, Germany unveiled its third energy relief package this year, worth 65 billion euros, to protect consumers.

European gas and electricity prices have been extremely volatile. They soared to record highs in late August before slumping last week after the European Union said it would change the structure of the energy market to lower prices for consumers and businesses. Nordic and Baltic prices were particularly volatile, in part because drought limited hydropower production in Norway.

Tom Marzec-Manser, gas analyst at ICIS, said he expected gas and electricity prices to rise again on Monday in response to the Gazprom shutdown. “Meeting the demand, whatever it turns out to be, is going to be much more difficult,” he said.

To some extent, energy markets were already constraining Russia to completely cut off gas supplies. Gazprom had cut Nord Stream capacity to 20% in the weeks before the shutdown.

A number of factors could act to lower prices after an initial jump, traders and analysts said – including action by Nordic governments. Weather forecasts indicate that there may be more energy production from wind farms, reducing demand for natural gas.


One of Europe’s two biggest buyers of Russian gas until recently, it said last week it had fully withdrawn a 9 billion euro credit line from German state lender KfW. The company said it had asked to borrow an additional 4 billion euros to make margin payments and buy natural gas to make up for missed deliveries from Gazprom.

Write to Joe Wallace at

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