Written by 5:50 pm EU Investment

EU energy ministers to discuss gas price cap, emergency liquidity help: document

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 Sept. 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.

“The margin requirements for futures contracts have increased commensurately with increased daily price fluctuations. This makes it almost impossible for an increasing number of companies to keep their hedging positions open, triggering their withdrawal from the futures markets,” the EU document said.

Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in a bid to prevent ballooning collateral requirements from toppling firms.

Finland is aiming to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish crowns ($23.2 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.

When Lehman Brothers, the fourth-largest U.S. investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst parts of the U.S. 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.

Utilities sell most of their power a few years in advance to guarantee a certain price, in an arrangement which requires them to deposit a “minimum margin” into an account as a safety net in case they default before the power is produced and actually enters the market.

A margin call occurs if the funds in the account fall below the minimum margin requirement for a trade, forcing the company to secure it with more cash. Soaring European power prices in recent months have triggered margin calls, putting a liquidity squeeze on market participants.

European gas and power buyers are bracing for further price pain when the markets open on Monday, after Russia said one of its main gas pipelines to Europe would remain shut indefinitely.

Lower gas flows from Russia ahead of and following its February invasion of Ukraine have pushed up European gas prices by nearly 400% over the past year. Moscow has attributed the discruptions to technical issues.

Any emergency EU policies would likely need to be proposed by the European Commission, which is currently drafting proposals.

The document echoed suggestions included in a draft Commission note last week, for EU-wide electricity consumption cuts and a power price cap for generators that don’t run on gas.

EU energy ministers will also discuss possible caps on the margin limits that energy exchanges can ask for, and a temporary suspension of European power derivatives markets, showed the document, which could still change ahead of the meeting.

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