"Energy Trading Stressed by Margin Calls of $1.5 Trillion" - Bloomberg

[Tom Nolan + 2,443]

(Bloomberg) -- European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA.

https://finance.yahoo.com/news/energy-trade-risks-collapsing-over-092509271.html

https://archive.ph/5xeqF

Energy Trading Stressed by Margin Calls of $1.5 Trillion

Anna Shiryaevskaya

Tue, September 6, 2022, 7:55 AM·4 min read

Bloomberg) -- European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA.

Aside from fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings. That’s pushing European Union officials to intervene to prevent energy markets from stalling, while governments across the region are stepping in to backstop struggling utilities. Finland has warned of a “Lehman Brothers” moment, with power companies facing sudden cash shortages.

“Liquidity support is going to be needed,” Helge Haugane, Equinor’s senior vice president for gas and power, said in an interview. The issue is focused on derivatives trading, while the physical market is functioning, he said,  adding that the energy company’s estimate for $1.5 trillion to prop up so-called paper trading is “conservative.”

Read more: Europe’s Lehman Warning on Energy Prompts Flurry of Cash Help

Many companies are finding it increasingly difficult to manage margin calls, an exchange requirement for extra collateral to guarantee trading positions when prices rise. That’s forcing utilities to secure multi-billion euro credit lines, while rising interest rates add to costs.

“This is just capital that is dead and tied up in margin calls,” Haugane said in an interview at the Gastech conference in Milan. “If the companies need to put up that much money, that means liquidity in the market dries up and this is not good for this part of the gas markets.”

So far Germany has introduced Europe’s biggest scheme to backstop companies affected by the fallout of the war in Ukraine, setting aside 7 billion euros in loans to be made available to companies facing liquidity issues. German energy giant Uniper SE last week sought an extra 4 billion euros after fully using a 9 billion-euro existing facility, while Austria extended a 2 billion-euro credit to cover the trading positions of Vienna’s municipal power utility.

Finland and Sweden announced a $33 billion emergency liquidity facility Sunday to backstop utilities through loans and credit guarantees.

EU plans to intervene would be “sensible” for derivatives trading, Haugane said. Among the emergency interventions being discussed by the EU are price caps in power and gas markets. For Equinor, price caps in electricity could make sense, because power markets are more localized.

But in gas, such measures would be extremely difficult due to the global nature of the market. For example, Europe has to beat Asia on price to attract liquefied natural gas cargoes.

“Power is a local, i.e. domestic, market, so in this case it would be possible to do something governments could control,” Haugane said. “But the issue of a gas price cap is different, because the natural gas market is global, and hence not that easy to manage.”

The underlying issue of the gas market is a lack of supply, and price caps won’t ease the strain or add to reserves, according to the Equinor executive.

“It doesn’t create any solution to the problem,” Haugane said. “Gas is a global commodity, and we don’t have that much supply so there is not much we can do.”

The European Commission is also examining measures to help with liquidity. These could include credit lines from the European Central Bank, new products as margin collateral, and temporary suspensions of derivatives markets, according to a policy background paper seen by Bloomberg News.

Energy Crunch

The surge in gas prices over the past two years has produced a crunch not dissimilar to the financial crisis, said Anatol Feygin, chief commercial officer at Cheniere Energy Inc., the biggest US liquefied natural gas exporter. “There are few places to look other than central banks” for help, he said.

Still, there was some optimism at Gastech in Milan that the liquidity issues will be ultimately resolved.

“The recapitalization of the industry and re-balancing of portfolios is a question of quarters and not years,” Feygin said in an interview at Gastech. “The bridge financing has been available to date. So far everyone has managed to find a way because the industry ultimately performs: the physical volumes are delivered and the financial positions have been settled.”

In the future, market participants would probably lean toward large credit-worthy players, he said.

Likewise, the liquidity crisis has largely spared biggest trading houses, which are profiting from price volatility, while utilities bear most of the shocks, said Charif Souki, chairman of US LNG developer Tellurian Inc.

“I have not seen any of the major trading houses have a liquidity issue, they all managed to find lines of credits and bank facilities and they are all making more money than they have ever made,” Souki said in an interview at Gastech. “For the utilities in Europe, it is a serious issue because they are buying gas that is now all of the sudden is extremely expensive, and they are regulated by their respective governments.”

(Updates with comments from Cheniere and Tellurian from 14th paragraph)

Edited September 6, 2022 by Tom Nolan

[Tom Nolan + 2,443]

https://finance.yahoo.com/news/eu-von-der-leyen-pledges-152111722.html

EU’s Von der Leyen Pledges Liquidity Help for Power Producers

Rachel Morison

Mon, September 5, 2022 at 10:21 AM·1 min read

 

 

(Bloomberg) -- European Union emergency interventions in the energy market will include support for electricity producers struggling to find enough cash to guarantee trades after wild swings in natural gas prices.

Energy ministers are due to meet on Friday to discuss action needed to stabilize Europe’s markets after Russia shut off gas supplies indefinitely on the Nord Stream pipeline. European Commission President Ursula von der Leyen outlined some the likely proposals on Twitter that include liquidity help for companies.

Many companies are finding it increasingly difficult to manage margin calls, an exchange requirement for extra collateral to guarantee a trading position when prices rise. Sweden and Finland created emergency backstops at the weekend to help utilities struggling with collateral requirements in a bid to prevent a “Lehman” moment.

On a list of measures drawn up by the Czech Republic, which holds the European Union’s rotating presidency, was a Europe-wide credit line for market participants faced with very high margin calls.

Uniper SE, Germany’s biggest utility, requested another 4 billion euros ($3.97 billion) in bailout loans, taking total government support to over 20 billion euros. Austrian utility Wien Energie received a 2 billion-euro credit line from the government last week.

©202 Bloomberg L.P.

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Edited September 6, 2022 by Tom Nolan

[Tom Nolan + 2,443]

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“Lehman Event” Looms For Europe As Energy Companies Face $1.5T In Margin Calls

By Josh Owens - Sep 06, 2022, 10:00 AM CDT

• Europe is facing a potential “Lehman Brothers” event as energy companies face $1.5 trillion in margin calls.
• Some countries in the EU have already decided to set up funds to avoid a collapse of their energy derivatives markets.
• The crisis deepened after Russia said on Friday that the Nord Stream gas pipeline to Germany would remain closed indefinitely.

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European energy companies are facing margin calls of a total of $1.5 trillion in the derivatives market and many would need policy support to cover them amid wild swings and skyrocketing gas and power prices, an executive at Norway’s energy major Equinor told Bloomberg on Tuesday. According to Helge Haugane, Equinor’s senior vice president for gas and power, the $1.5-trillion estimate is even “conservative”. 

Liquidity at energy firms is drying up as many companies have started to struggle to meet their margin calls on the energy derivatives market. 

“If the companies need to put up that much money, that means liquidity in the market dries up and this is not good for this part of the gas markets,” Equinor’s Haugane told Bloomberg.  

Some countries in the EU have already decided to set up funds to avoid a collapse of their energy derivatives markets. Finland and Sweden put out plans this weekend to support their energy companies trading in the electricity derivatives markets, looking to avoid a “Lehman Brothers” event in their respective energy industries and financial systems.  

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Minister of Economic Affairs, Mika Lintila, said on Sunday, as carried by Reuters, commenting on the energy crisis in Europe. 

The crisis deepened after Russia said on Friday that the Nord Stream gas pipeline to Germany would remain closed indefinitely, and blamed on Monday the Western sanctions for this situation. 

Finland discussed stabilization measures required in the electricity derivatives market, and a proposed central government scheme “is a last-resort financing option for companies that would otherwise be at risk of insolvency,” the Finnish government said in a statement on Sunday. 

Finland will look to set up a loan and guarantee scheme of up to $9.92 billion (10 billion euro), under which the State may grant loans or guarantees to companies engaged in electricity production in Finland. 

Related: Gazprom Slashes Natural Gas Deliveries To French Utility Giant

In neighboring Sweden, the government proposed state credit guarantees to mainly electricity producers trading in the market for electricity derivatives. The total amount of required collateral in the market has since June increased from about $6.5 billion (70 billion Swedish crowns) up to about $16.6 billion (180 billion crowns), the government said.  

“The purpose of the measure is to prevent that the lack of liquidity could create risks for contagion to other parts of the financial system,” Sweden’s Finance Ministry said. 

By Josh Owens for Oilprice.com 

More Top Reads From Oilprice.com:

• Belgian Energy Minister: Europe Faces Tough Winter Without Gas Price Cuts
• The Global Gas Crisis Is Spilling Into The United States
• Russia Is Now Producing LNG Near The Shuttered Nord Stream Pipeline

 

[footeab@yahoo.com + 2,190]

Oh, the poor vampire parasite "traders" who make/use ZERO product are getting shafted... oh how my heart bleeds.  Far as I am concerned all speculators in commodities should be banned.  Unless you PHYSICALLY BUY it, move it to YOUR property/business = no trade.  Oh no!, this would essentially remove London and New York as hubs of commerce... who in actuality have near ZERO commerce. 

EDIT: I would ban all margin calls as well. Yes,  I know, this combined with the prior paragraph would end the vast majority of "traders" so called "business" putting them all out of work.  Ah, one can dream...

Edited September 11, 2022 by footeab@yahoo.com

[Blackbag99 + 20]

You probably have to look no further than the awful demand numbers out of the US.

Last 4 weeks

Gasoline -7.7%, Distillate -15%

[Blackbag99 + 20]

Let's update the product supplied numbers.

US:+1.2% YTD, that includes that massive bounce expected from air travel. lol. Exported product is now +4% versus last year of -4%. Oil to commercial producers runs at 28 days, there is ample supply

There is nothing stressed in the oil market that I can see and illuded too 12-6 months ago.