Bloomberg News reports that the energy trading in the European regions is getting stressed by the margin calls of about $1.5 trillion, thereby exerting much pressure on the governments. The governments are under pressure to offer market liquidity and buffer liquidity, which was revealed as per Norway’s Equinox ASA.
Aside from fueling inflation, this energy crunch, which is the biggest in decades, is draining out capital for guaranteeing trades amidst the wild price oscillations. This has led European Union officials to intervene in the matter to prevent the energy markets from being stalled. Meanwhile, the governments in the region are intervening to halt the struggling utilities. A “Lehman Brothers” instance has been warned by Finland, with certain power firms vulnerable to a sudden shortage in cash.
Several companies are facing difficulty in managing margin calls. It is an exchange requirement for additional collateral to guarantee trade positions when there is a price surge. This compels the utilities to secure multi-billion euro credit lines while surging interest rates add to the costs.
Till now, Germany was found to introduce the most extensive scheme in Europe for backstopping those companies that have been affected by the effects of the ongoing Ukraine war, thereby setting aside in loans an amount of 7 billion euros, which is to be made available to the firms that are subjected to issues related to liquidity.
Bloomberg News reports that the energy giant in Germany, Uniper SE, in the past week was seeking an additional 4 billion euros after entirely using a 9 billion euro facility. On the other hand, Austria has made it possible to extend a 2 billion euro credit for covering the trade positions of the power utility of Vienna’s municipality.
Sweden and Finland announced on Sunday a $33 billion emergency liquidity facility for backstopping utilities utilizing credit guarantees and loans.
The European Commission is in the process of examining those measures that can help with liquidity. As per Bloomberg News, some options might include the European central bank’s credit lines, temporary suspensions related to the derivatives markets, and new products that can be used as margin collateral.
Energy Crisis
The gas price increase over the last 24 months has led to a crunch that is not the same as that of a financial crisis, as stated by the chief commercial officer, Anatol Feygin, associated with Cheniere Energy Inc. This firm is the largest exporter of US liquified natural gas. He revealed that few other avenues could be looked into besides the central banks for help.
Similarly, the liquidity crunch has spared the biggest trading entities largely. These entities are benefiting and earning profits from the volatility in prices, but utilities are bearing most of the stocks, as revealed by the chairman of US LNG developer Tellurian Inc, Charif Souki.
