European energy companies face a combined $1.5 trillion in margin calls in the derivatives market, and many would need political support to cover them amid wild swings and skyrocketing gas and electricity prices, a senior executive at Norwegian energy group Equinor said to Bloomberg on Tuesday. In fact, the $1.5 trillion estimate is “conservative,” according to Helge Haugane, Equinor’s senior vice president of gas and power.
Energy company liquidity is drying up as many companies have started to meet their margin calls in the energy derivatives market.
“When companies have to raise that much money, it means that liquidity is drying up in the market and that’s not good for that 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 in their energy derivatives markets. Finland and Sweden unveiled plans this weekend to help their energy companies trade in the power derivatives markets to avoid a “Lehman Brothers” event in their respective energy industries and financial systems.
“This has the ingredients for a kind of Lehman Brothers of the energy industry,” Finland’s Economy Minister Mika Lintila said on Sunday, as reported by Reuters, commenting on Europe’s energy crisis.
The crisis deepened after Russia said on Friday that the Nord Stream gas pipeline to Germany would remain closed indefinitely, blaming Western sanctions for the situation on Monday.
Finland was discussing the necessary stabilization measures in the power derivatives market, and a proposed central government program “is a last financing option for companies that would otherwise face bankruptcy,” the Finnish government said in a statement on Sunday.
Finland will seek to set up a loan and guarantee scheme of up to USD 9.92 billion (€10 billion), under which the state can provide loans or guarantees to companies involved in electricity generation in Finland.
In neighboring Sweden, the government offered government loan guarantees mainly to power producers trading in the power derivatives market. The total amount of collateral required in the market has risen from about $6.5 billion (Swedish kroner 70 billion) to about $16.6 billion (crown 180 billion) since June, the government said.
“The purpose of the measure is to prevent that the lack of liquidity could create risks of contagion to other parts of the financial system,” Sweden’s finance ministry said.
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