Germany is being rocked by the Energy crisis and its reliance on cheap Russian gas. Since Russia’s invasion of Ukraine, the Germans vulnerability has been exposed and it is a disaster. German gas giant Uniper SE is in talks with the government over a potential bailout package of as much as 9 billion euros Bloomberg reports. Analysts estimate that curbed Russian flows are costing Uniper 30 million euros a day. We see it in trade, Germany’s trade balance came in at minus €1bn in May, which is the first negative print since 1991 due to its energy problems & weakness in manufacturing.
We see it power costs, German benchmark 1-year forward electricity contract surged to €300 per mega-watt hour. Europe is moving aggressively to wean itself off Russian natural gas supplies with U.S. exports of liquefied natural gas expected to remain strong for some time.
German benchmark 1-year forward electricity contract surges to €300 per mega-watt hour — excluding 2 days in December 2021, that’s a record high. via Javier Blas @JavierBlas
Meanwhile a tightening backdrop in the natural gas market, unrelenting export demand highlighted by Germany’s dependance on Russian supplies and its impact on domestic supplies futures continue to be elevated with a lack of sustained production growth fueling concerns about adequate supplies ahead of summer, let alone next winter.
German Gas Giant Uniper SE Bailout Talks
Uniper is in talks with German government over a potential bailout package of as much as 9 billion euros, according to a person familiar with the situation Bloomberg reported. Uniper declined to comment. Germany built its economic model on cheap Russian gas and Uniper is one of the biggest importers of Russian gas.
It is clearly and economic war between Russia and Germany with Putin using Energy as a weapon. German Economy Minister Robert Habeck last week elevated Germany’s gas emergency level to second highest ‘alarm’ stage and warned the gas crunch risks triggering a Lehman style collapse.
“We aren’t dealing with erratic decisions but with economic warfare, completely rational and very clear,” Habeck said on Saturday. “After a 60% reduction, the next one logically follows.”
The government is looking at applying a set of measures, including loans, taking an equity stake and also passing part of the surge in costs onto customers, said two people familiar with the talks.
The government is preparing legislation that would enable the state to take stakes in struggling energy companies, according to two senior officials. It will also allow for at least part of the cost of rising gas prices to be passed on to consumers. Analysts estimate that curbed Russian flows are costing Uniper 30 million euros a day. The cabinet is set to approve the bill on Tuesday, followed by the upper and lower houses of parliament on Friday. – Bloomberg
German Economic Rupture from gas prices.
Germany’s trade balance came in at minus €1bn in May, which is the first negative print since 1991 due to its energy problems & weakness in manufacturing.
Potential German GDP losses due to production cutbacks in the case of natural gas rationing
The energy crisis pounding the world with unheard of prices was impacting the domestic pricing. In Europe we saw up near record highs again:
- Hotter weather hitting demand
- Russia halting transfer
- German rationing
- Freeport LNG down
- Norway supply to rebound.
- Putin constant threats
The EU also is considering requiring natural gas storage facilities to be filled at least 80% capacity for next winter. Given that European supplies are below historic averages coming out of winter, this would almost certainly keep demand for U.S. LNG elevated through 2022.
Daily Europe natural gas inventory by year.
Daily Europe NG inventory by year. Europe NG storage is at 57.6% of capacity. That is -3.0% vs 5yr avg.
Sources: TradersCommunity, EIA, RonH Energy, Bloomberg, KnovaWave
From The TradersCommunity US Research Desk