Nord Stream 1 closure threatens Sweden, Finland energy market with ‘Lehman Brothers’ crisis

Stockholm: Finland and Sweden have 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.

The Kremlin blamed European politicians on Sunday for the closure of the pipeline, saying their economic sanctions on Russia had hindered Gazprom from conducting maintenance.

Finland Prime Minister Sanna Marin.Credit: AP

Finland is aiming to offer €10 billion ($14.6 billion) and Sweden plans to offer 250 billion Swedish crowns ($34 billion) in liquidity guarantees.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday, local time.

When Lehman Brothers, the fourth-largest US investment bank at the time, filed for bankruptcy in September 2008 with more than $US600 billion in debt, it triggered the worst parts of the US financial crisis.

“The government’s program is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finland’s Prime Minister Sanna Marin told a news conference.

State-controlled Finnish power company Fortum, which last week had urged Nordic regulators to take immediate action to avert defaults even among smaller players, praised the proposals made by Helsinki and Stockholm.

“We appreciate Finnish and Swedish governments taking swift action to stabilise the Nordic derivatives market and support Nordic energy companies in time of crisis,” the company tweeted.

“It’s crucial to keep companies operational. Our discussions with the Finnish government are ongoing,” it said.

The guarantees aim to prevent ballooning collateral requirements from toppling energy companies that trade electricity on the Nasdaq Commodities exchange, an event that could in turn spread to the financial industry, the governments said.

Fortum in Espoo, Finland.Credit: AP

Lower gas flows from Russia both before and after its February invasion of Ukraine have pushed up European prices and driven up electricity costs.

The rapid rise in electricity prices has resulted in paper losses on electricity futures contracts of power companies, forcing them to find funds to post additional collateral with the exchanges.

The collateral requirement on Nasdaq clearing recently hit 180 billion Swedish crowns, up from around 25 billion in normal times due to the surge in power prices, which have risen some 1100 per cent, Sweden’s debt office said on Saturday.

The government feared that the Nord Stream 1 shutdown would lead to a further surge.

Finland’s Marin said there needed to be measures at the European Union level to stabilise the functioning of both the derivatives market and the energy market as a whole.

Nasdaq clearing is a Swedish company supervised by Swedish authorities, which is the main reason Sweden was the first country to step in to tackle the potential crisis.

Swedish Finance Minister Mikael Damberg said on Sunday that the guarantees would last until March next year in Sweden and would also cover all Nordic and Baltic nations for the next two weeks only.

Without government guarantees, electricity producers could have ended up in “technical bankruptcy” on Monday, Damberg said.

European Union countries’ energy ministers will discuss options to rein in soaring energy prices including gas price caps and emergency credit lines for energy market participants, a document seen by Reuters showed.

EU ministers will meet on September 9 to discuss urgent bloc-wide measures to respond to a surge in gas and power prices that is hammering Europe’s industry and hiking household bills, after Russia curbed gas deliveries to the bloc.

A draft document, seen by Reuters, said the ministers will consider options including a price cap on imported gas, a price cap on gas used to produce electricity, or temporarily removing gas power plants from the current EU system of setting electricity prices.

Ministers will also consider offering urgent “pan-European credit line support” for energy market participants facing very high margin calls, said the document drafted by the Czech Republic, which holds the EU’s rotating presidency.

State-controlled Gazprom announced on Friday that the main pipeline to Germany would remain closed indefinitely, delivering a shock to customers who had it expected it to reopen on Saturday after three days of maintenance work.

The announcement from Moscow came hard on the heels of an agreement among US-led rich nations to seek ways to cap the prices paid for Russian oil exports, and raised fears that parts of Europe could be forced to ration energy.

“If the Europeans absolutely absurdly make a decision to refuse to service their equipment, or rather, equipment that belongs to Gazprom, but which they are contractually required to service, this is not Gazprom’s fault,” Kremlin spokesman Dmitry Peskov said in an interview with Russia’s state television, according to the Interfax news agency.

“It is the fault of those politicians who made decisions on sanctions.”

Gazprom said on Friday it could no longer provide a timeframe for restarting deliveries after finding an oil leak that meant a pipeline turbine could not run safely.

Reuters

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