Margin Calls, Energy Trading On Verge Of Collapsing
$1,500,000,000,000 in Margin Calls Thats $1.5 Trillion In Margin Calls For Energy Traders To Pony Up.
Energy Trade Risks Collapsing Over Margin Calls of $1.5 Trillion
Anna Shiryaevskaya, Bloomberg News
Equinor platform in the Johan Sverdrup oilfield. Photographer: Tom Little/AFP/Getty Images , Photographer: TOM LITTLE/AFP
(Bloomberg) -- European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA.
Aside from fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings. That’s pushing European Union officials to intervene to prevent energy markets from stalling, while governments across the region are stepping in to backstop struggling utilities. Finland has warned of a “Lehman Brothers” moment, with power companies facing sudden cash shortages.
“Liquidity support is going to be needed,” Helge Haugane, Equinor’s senior vice president for gas and power, said in an interview. The issue is focused on derivatives trading, while the physical market is functioning, he said, adding that the energy company’s estimate for $1.5 trillion to prop up so-called paper trading is “conservative.”
Read more: Europe’s Lehman Warning on Energy Prompts Flurry of Cash Help
Many companies are finding it increasingly difficult to manage margin calls, an exchange requirement for extra collateral to guarantee trading positions when prices rise. That’s forcing utilities to secure multi-billion euro credit lines, while rising interest rates add to costs.
“This is just capital that is dead and tied up in margin calls,” Haugane said in an interview at the Gastech conference in Milan. “If the companies need to put up that much money, that means liquidity in the market dries up and this is not good for this part of the gas markets.”
So far Germany has introduced Europe’s biggest scheme to backstop companies affected by the fallout of the war in Ukraine, setting aside 7 billion euros in loans to be made available to companies facing liquidity issues. German energy giant Uniper SE last week sought an extra 4 billion euros after fully using a 9 billion-euro existing facility, while Austria extended a 2 billion-euro credit to cover the trading positions of Vienna’s municipal power utility.
Finland and Sweden announced a $33 billion emergency liquidity facility Sunday to backstop utilities through loans and credit guarantees.
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