Uniper and potential nationalisations of the utility sector
Europe’s gas situation was already deteriorating rapidly before Russia’s invasion of Ukraine but after the war it has gone from bad to worse. The 1-month forward natural gas future has galloped to 170 EUR/MWh zooming in on the highs from when the war broke out. These punitive natural gas prices are having a demand destruction in Europe already with emergency plans being enacted in many countries in our to ration gas supplies for the industry if the gas supply from Russia is cut even further. Many industrial stocks in Europe are down recently as the outlook is gloomy.
Gas storage in Europe is still trending well within the past 10 years seasonality pattern suggesting that despite lower supply of gas storage is still rebuilding at the same pace suggesting demand is lower at these high prices. Another recent casualty of Europe’s gas crisis is the German utility company Uniper, which is 75% owned by Finnish Fortum, which is no longer receiving the gas volume from Gazprom that it has contracted (only 40% of its previous gas volume) and as a result the utility is forced to acquire the gap in the spot market at punitively high prices.
Uniper has recent issued a profit warning and cancelled its outlook while seeking a government bailout of as much as €9bn to cover the extra costs. Both E.ON and RWE have less exposure to Russian gas than Uniper but other utilities in Europe could face same issues as Uniper and thus more government bailouts could be on the table in Europe’s utility sector. To preserve gas for its industry, Germany has declared gas emergency level 2 (out of 3) and will allow extending coal fired electricity generation to lower gas intake in its electricity generation.