Equinor top warns of collapse in the European energy market without an injection of liquidity from the authorities

Helge Haugane, Equinor’s director of gas and energy, warns in an interview with Bloomberg about the collapse of the financial European energy market if the authorities do not provide USD 1,500 billion in liquidity.

He believes the European energy market will grind to a halt if the players do not get additional security to cover margin requirements in the ongoing crisis.

– Support is needed, says Haugane to the news agency at a conference in Milan.

He refers more specifically to financial trading, and believes that the physical market is still functioning. But he points out that his and Equinor’s estimates for how much security the players will need are “conservative”.

Sweden and Denmark gave guarantees

Due to the enormous uncertainty and volatility in the power market, the margin requirements of the companies that trade power in the financial market are increasing.

That is why Sweden and Finland saw themselves at the weekend obliged to provide liquidity guarantees of NOK 250 billion and NOK 100 billion, respectively, in order to “avoid a financial crisis”, as Sweden’s finance minister himself formulated it at the weekend.

Players in the market must provide collateral to be able to guarantee their trading positions when prices rise. When prices have skyrocketed recently, it has also meant that the players have to take out loans in the billions to cover the ever-increasing margin requirements, which increase in line with the prices for the underlying financial instrument.

At the same time, the increased interest rates cause costs to rise further.

– This is “dead” capital that is tied up in the margin requirements. If companies have to set aside so much money, it means that liquidity in the market is drying up. That’s not good news for [denne delen] of the gas market, Haugane tells Bloomberg, adding that it would be sensible for the EU to intervene.

The Equinor top is also aware that it will be one thing to set a price ceiling in the electricity market, since these are markets that are more local. In the gas market, however, this will be very difficult, writes Bloomberg.

– The electricity market is local, i.e. domestic, so it will be possible to do something that the authorities can control. But the problem in the gas market is that it is a global market, and thus not as easy to handle, says Haugane to Bloomberg.

Discussing price caps

In an attempt to mitigate the energy crisis, the European Commission outlines in a document a plan for a maximum price for gas imported from Russia, according to the Financial Times.

The commission is also considering introducing a more dynamic price ceiling that will vary from country to country depending on the energy mix. Among other things, bottlenecks in the infrastructure in Northern Europe have pushed wholesale gas prices higher than in other European regions. A price cap for countries worst affected by gas supply disruptions could be set with reference to the Dutch TTF gas exchange, which is traditionally seen as a benchmark for European prices, according to the paper.

European Commission President Ursula von der Leyen tweeted on Monday that the proposal will focus on, among other things, price caps on Russian gas, help for vulnerable consumers and support for electricity producers.

The support for consumers and the business world will come with “the income of the energy sector,” she writes further – i.e. probably in the form of increased taxes.

French President Emmanuel Macron also spoke in that direction on Monday, when he backed a mechanism to redistribute “excessive surpluses” in the energy sector as a result of high commodity prices.

The proposals come at the same time as Russia has announced that the flow of gas through the critical Nord Stream 1 pipeline will be suspended until Western sanctions are lifted. It sent gas prices up 30 percent on Monday morning.

Discussing options in the UK

When Liz Truss was elected as the new leader of the Conservative Party, and thus the new Prime Minister of Great Britain, on Monday she promised in her victory speech to address the ever-increasing costs.

According to the British media, including the BBC, work is being done on a law which means that the electricity bill will be frozen, and that the suppliers will have the opportunity to get loans from the state to subsidize the bills. The plan has a framework of 100 billion British pounds, and was proposed by energy companies in August, writes the BBC.

Elsewhere in Europe, both Swiss Axpo and Finnish Fortum have secured billions in crisis loans from their respective authorities.

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