"THE ENERGY MARGIN CALL & THE EUROPEAN ENERGY SECURITY"
QUESTION IS WHO NEEDED AND WHO WANTED ENERGY PRICE TO MOVE?
WHO WANTED TO DEFUND RUSSIA DESPITE IT HURTING ITS ALLIES?
WHO HAS ROCKED THE EUROPEAN ENERGY SECURITY BOAT?
NOTE: The Margin Call happened already in June before there were issues with turbines.
FLASH NEWS: Norway's Equinor ASA says European energy trading
is being strained by margin calls of at least $1.5 trillion…!!
Lehman Brothers was $600 billion…
it was caused by utilities shorting the market
but they got burned by Russia closing Nordstream 1
I. Cui prodest? - a Latin term which means “who profits?”
8 June 2022 Angela Merkel in the interview:
"But it wasn't an easy decision. "The thesis at the time was that once Nord Stream 2 is operational, Putin will stop supplying gas through Ukraine or even attack it." The West ensured that gas was routed through Ukraine anyway, and she continued to receive transit fees. Merkel pointed out that Russia then attacked Ukraine on February 24, when gas was not yet routed through Nord Stream 2 . "In this sense, gas was not a weapon," Merkel said."
24 June 2022 - Germany says its energy crisis may trigger Lehman-like contagion as the country moves a step toward to natural-gas rationing
Germany's economy minister warns of a "market collapse" if natural-gas prices continue to soar.
Germany has triggered the second stage of its three-stage emergency gas plan on supply fears.
That's after Russia —citing a technical reason — slowed piped natural-gas supplies to Germany.
21 July 2022 - Energy war looms as Europe braces for Putin to reduce natural gas exports
“Russia is blackmailing us. Russia is using energy as a weapon,” European Commission President Ursula von der Leyen said Wednesday, adding Europe had to prepare for the worst.Defending its record as a reliable supplier, Russia said the drop in capacity owed to technical problems that it blamed on sanctions.
"Gazprom has fulfilled, is fulfilling and will fulfill all its obligations," Putin's spokesman Dmitry Peskov said at a daily news briefing Thursday. "Any technological difficulties associated with this stem from the restrictions imposed by the European states themselves."
17 August 2022 - Germany’s Uniper on the ‘brink of insolvency’ after €12bn loss
German utility Uniper reported a €12.3bn first-half loss, saying it had become a “pawn” in the Ukraine conflict and had been pushed to the “brink of insolvency” by a huge drop in Russian gas deliveries.
The loss by Europe’s biggest importer of Russian gas is one of the largest by a German company, eclipsing Bayer’s €10.5bn loss in 2020.
Uniper chief executive Klaus-Dieter Maubach warned on Wednesday that Europe faced a grim energy outlook this winter, saying the gas supply crisis made it “almost impossible” to predict the group’s performance in the second half of the year.
“We do assume that Gazprom, if it wanted to, could considerably increase its gas deliveries through Nord Stream 1,” he said, adding that gas prices had gone haywire because of “concerns about the reliability of energy supply”.[M: The European energy crisis was already happening in June when deliveries were uninterrupted.]
II. The boomerang effect on sanctions
4 Sept 2022 - Sweden, Finland step in to avert Lehman-like situation for power companiesFinland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in their countries after Russia’s Gazprom shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday.
[M: Actually at this point volume was reduced to what available turbines allowed and then a 3 day maintenance was announced to install returned turbines. - see post here]
6 Sept 2022 - Energy Trading Stressed by Margin Calls of $1.5 Trillion
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.6 Sept 2022 - “Lehman Event” Looms For Europe As Energy Companies Face $1.5T In Margin Calls
16 Sept 2022 - Explainer: How margin calls came to threaten Europe's energy firmsSoaring power and gas prices have rocked energy companies across Europe, forcing utilities and traders to secure extra funds from governments and banks to cover margin call requirements.21 Sept 2022 - Europe’s Energy Crunch Pushes Germany To Nationalize Top Gas Firm—Months After France Makes Similar Move
Germany on Wednesday announced a deal to nationalize Uniper—the country’s biggest gas importer—in a move that comes months after neighboring France nationalized its biggest utility company EDF, as countries across Europe scramble to respond to an ongoing energy crisis sparked by Russia’s decision to completely cut off the supply of natural gas to the region via the critical Nord Stream 1 pipeline.
As part of the deal, the German government has agreed to acquire Finnish state-energy firm Fortum’s 78% stake in Uniper for nearly half a billion euros (nearly $480 million) raising its total stake in the company to 99%.
With the Nord Stream 1 pipeline being out of action, Russian gas supplies to Europe are now primarily flowing through Ukraine, but Moscow has threatened to shut this supply route as the G7, led by the U.S., moves to impose a global price cap on Russian oil.
Germany is not the first European country to nationalize a major utility provider in recent months. In July, the French government agreed to pay nearly €10 billion ($9.9 billion) to fully nationalize the electricity giant EDF, by acquiring the remaining 16% of the company’s shares that it did not already own.
Earlier this month, Russia warned that supplies through the key Nord Stream 1 pipeline will not resume until the West lifts all sanctions against it. Moscow argues the sanctions have prevented it from carrying out needed maintenance on the critical pipeline—an argument that European officials have dismissed.
[M: This post details the boomerang effect of sanctions against Nordstream 2 AG in on gas deliveries.]
IV. Cutting off the toxic power and pipelines from authoritarian regimes?
28 August 2022 - PM Boris Johnson: The next few months will be tough but I’m convinced Britain’s bounceback will be golden
We are ending our dependency on Russian hydrocarbons. In June, for the first time in decades, we did not import any fuel from Russia. The UK has already stepped up production of domestic gas – 26 per cent more this year than last. We are going to build a new reactor every year and will have a colossal 50 gigawatts of offshore wind by 2030 – almost half our total electricity consumption. This British Energy Security Strategy is just a part of a vast programme to make the economy more productive and competitive.
21 Sept 2022 - UK Prime Minister Truss addresses
the United Nations General Assembly
01:00 min: "...Geopolitics is entering a new era.."06:00 min: "We are cutting off the toxic power and pipelines from authoritarian regimes and strengthening our energy resilience.""We will ensure we cannot be coerced or harmed by the reckless actions of rogue actors abroad.""The free world needs this economic strength and resilience to push back against authoritarian aggression and win this new era of strategic competition.
We must do this together."
We are fortifying our deep security alliances in Europe and beyond through NATO and the Joint Expeditionary Force.
08:30 min: "The UK is providing funding, using the might of the City of London and our security capabilities to provide better alternatives to those offered by malign regimes.The resolute international response to Ukraine has shown how we can deliver decisive collective action.The response has been built on partnerships and alliances and also on being prepared to use new instruments – unprecedented sanctions, diplomatic action, and rapid military support.There has been a strength of collective purpose – we have met many times, spoken many times on the phone, we have made things happen.Now we must use these instruments in a more systematic way to push back on the economic aggression of authoritarian regimes.The G7 and our like-minded partners should act as an economic NATO, collectively defending our prosperity.If the economy of a partner is being targeted by an aggressive regime we should act to support them. All for one and one for all.
12:00 min "In all these areas, on all of the fronts, the time to act is now. This is a decisive moment in our history, in the history of this organization and in the history of freedom...
The story of 2022 could have been that of an authoritarian state rolling its tanks over the border of a peaceful neighbour and subjugating its people.
Instead, it is the story of freedom fighting back.
In the face of rising aggression we have shown we have the power to act and the resolve to see it through.
But this cannot be a one-off.
This must be a new era in which we commit to ourselves, our citizens, and this institution that we will do whatever it takes – whatever it takes to deliver for our people and defend our values."
Britain’s commitment to this is total.
We will be a dynamic, reliable and trustworthy partner.
26 Sept 2022 - Nordstream pipelenes are attacked.
[M: This post details how UK turned ties and became net energy exporter. The energy crisis was already raging, the Nordstream affair added on it.]
V. Aftershocks
29 Sept 2022 - EBA response to the European Commission on the current level of margins and of excessive volatility in energy derivatives markets
The European Commission has asked the European Banking Authority (EBA) to consider the following three questions:
- Explore possible ways to facilitate the provision of guarantees that could be posted as collateral by non-financial counterparties
- Assess how and to what extent banks currently provide collateral transformation services.
- Consider any possible other measures to minimise the liquidity challenges currently faced by energy companies, including ways to improve the transparency, volatility and predictability of margin calls, in particular intraday
On 13 September, the European Commission asked the EBA to consider possible responses to the current levels of margins and the excessive volatility in energy derivatives markets, with the objective of providing support to energy companies.
These considerations are taking place against the background of rapid increases in EU energy prices.
As a result, CCPs require energy firms to post additional collateral, also called margin requirements on energy derivatives used for price hedging by energy firms.
Should energy firms ultimately be unable to meet these margin calls, thereby defaulting, this may trigger market disruptions
VI. Cui prodest?
1 January 2021 - the UK left the EU's internal energy market.
Energy trading through electricity interconnectors between the EU and Great Britain is no longer managed through existing single market tools, such as EU market coupling, as these are reserved for EU countries. Only Northern Ireland will maintain part of the single electricity market with Ireland, as provided by the Withdrawal Agreement.Before Brexit, the UK participated in the EU's energy market coupling initiative, which facilitated the trading of electricity with other member states. However, after Brexit, the UK ceased to be a part of this initiative, and the energy market coupling with the EU was discontinued.
This has led to a number of consequences for the UK's energy market, including:
- Increased energy prices: The end of energy market coupling has resulted in higher energy prices for consumers in the UK. This is because the UK is no longer able to benefit from the cheaper electricity prices available in other EU countries.
- Reduced energy security: The end of energy market coupling has also reduced the UK's energy security, as the country is now more reliant on its own energy resources and less able to import electricity from other countries.
- Increased regulatory costs: The UK has had to establish its own regulatory framework for the energy market, which has resulted in additional costs for energy companies.
- Investment uncertainty: The end of energy market coupling has also created uncertainty for investors in the UK's energy sector, as they are no longer able to rely on the stable and integrated EU energy market.
Overall, the end of energy market coupling has had significant implications for the UK's energy market.
7 April 2022 - UK updates its energy security strategy
It is crucial we work with international partners to maintain stable energy markets and prices. This will help protect UK consumers and reduce the use of fossil fuels globally. Similar to our domestic strategy, we have a dual approach to reduce global reliance on Russian fossil fuels whilst pivoting towards clean, affordable energy. To reduce global reliance on Russian fossil fuels, the UK is:
- committing to phase out the use of Russian oil and coal by the end of 2022, and end imports of Russian liquefied natural gas as soon as possible thereafter. The US has made similar commitments
- building international support to reduce Russian energy revenues. Internationally coordinated action, for example, through the G7 and International Energy Agency is key to support stable markets and to help secure the critical minerals we all need to successfully move to clean energy
- providing a key EU entry point for non-Russian supplies of gas. We are examining our infrastructure to ensure gas flows efficiently between the UK, Europe and the global market through our interconnectors and LNG terminals and promote gas infrastructure to be hydrogen-ready
Oil and gas
- Low carbon UK gas, and zero Russian imports.
29 Sept 2022 - UK Becomes Net Exporter of Electricity: Energy Update
VII. The effect of boomerang sanctions
This EU timeline gives an overview of the EU restrictive measures imposed on Russia since 2014
12 Oct 2022 - Russia claims attack on NordStream is "act of state terrorism" .
"The recent terrorist attack on the Nord Stream 1 and 2 natural gas pipelines was aimed at undermining the energy security of the entire continent", Russian President Vladimir Putin said on Wednesday.
CONCLUSION/SUMMARY:
It is possible that the boomerang effect of sanctions on European economy was already well known and understood?
It is possible that major economical power Germany wanted a way out while the UK wanted to keep the pressure on Russia?
Who lost most money when Nordstream pipes were attacked and energy prices spiked? (hint European utilities and taxpayers who bailed them out)
What was the role of London banks in this vs Margin call on EU Utilities?
Sanctions caused self-inflicted pain.
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