Europe burns money to help companies exacerbate the energy crisis

Europe burns money to help companies exacerbate the energy crisis

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  • European gas prices rose sharply amid the Ukraine crisis
  • Utilities face a liquidity crunch as fuel prices rise
  • Germany will do “everything it can” to help companies
  • Russian packaging pushes oil higher, adding to price pain

BERLIN/LONDON (Reuters) – Germany nationalized gas importer Uniper (UN01.DE) on Wednesday and Britain put a cap on the wholesale cost of electricity and gas for businesses, in Europe’s latest move to keep lights and heaters running this winter. War escalated in Ukraine.

Russian President Vladimir Putin has added to price pains in global energy markets, driving up oil and gas prices by announcing a partial military mobilization for Russia, threatening to tighten global fuel supplies further.

European gas and energy prices skyrocketed as Russia cut fuel exports in response to Western sanctions over its invasion of Ukraine, leaving consumers struggling with sky-high bills and utilities struggling with a liquidity crunch. Read more

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“We have intervened to stop the collapse of businesses, protect jobs and reduce inflation,” British Finance Minister Kwasi Quarting said.

While many companies are grappling with higher bills, more than 20 UK power providers have collapsed, and many have collapsed because government-imposed price caps have prevented them from transferring the full impact of rising fuel costs to homes. Read more

European gas prices rose on Wednesday, after Putin’s announcement, to reach 212 euros per megawatt-hour, still below this year’s peak of about 343 euros but more than 200% higher than last year. Oil prices rose 2%.

The European Union, which previously relied on Russia for about 40% of its gas needs, has been racing to find other supplies.

“The (Russian) move could lead to calls for more aggressive action against Russia regarding sanctions from the West,” said Warren Patterson, head of commodity research at ING.

Among the most notable victims, Germany’s Uniper, which has been heavily dependent on imports of Russian gas, faces a liquidity crunch as Russia shuts down the tap and drives up prices.

After efforts to support utilities with billions of euros in cash proved insufficient, the government agreed to buy the remaining stake owned by Finnish Fortum (FORTUM.HE) to keep the company running, giving the state 99% possession. Read more

“Do everything possible”

“The state will do everything in its power to keep companies always stable in the market,” German Economy Minister Robert Habeck said, announcing the move by Uniper and other steps to help Germany avoid energy rationing this winter. Read more

Uniper said the agreement includes an injection of 8 billion euros ($7.94 billion), in a move that brings the government’s total capital injections so far to at least 29 billion euros.

Germany has been more dependent than other countries in Europe on Russian gas, which is mostly supplied via the Nord Stream 1 pipeline. Russia has halted flows through the pipeline, blaming Western sanctions for hampering operations. European politicians use this excuse and say that Moscow is using energy as a weapon.

The German government has already placed Gazprom Germania, a unit of Kremlin-controlled Gazprom, and a subsidiary of Russian oil company Rosneft (ROSN.MM) under guardianship — a de facto nationalization. Small businesses also asked for help.

Fortum CEO Markus Rauram said the sale of the company’s stake in Uniper was a painful but necessary move, adding that the government-owned Finish company lost about 6 billion euros through its Uniper investment.

Russian gas continued to flow to Europe via Ukraine, but at lower levels. Gazprom (GAZP.MM) said it will ship 42.4 million cubic meters of gas to Europe via Ukraine on Wednesday, in line with recent days.

Eastbound gas flows through the Yamal-Europe pipeline to Poland from Germany were halted on Wednesday, while Russian supplies via Ukraine remained stable. Read more

In the United States, Democratic and Republican senators on Tuesday proposed that the administration of US President Joe Biden use secondary sanctions on international banks to bolster G7 countries’ plans on Russian oil. Read more

Moscow said it would cut off all oil and gas flows to the West if the cap was implemented.

The US lawmakers’ move came hours before Putin ordered Russia’s first mobilization since World War II, warning the West that if it continued what he called its “nuclear blackmail”, Moscow would respond with its massive arsenal. Read more

Several countries have banned imports of Russian crude oil and fuel, but Moscow has been able to preserve its revenue by increasing crude sales to Asia.

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Reporting by Reuters offices. Writing by Ingrid Melander; Editing by Edmund Blair

Our criteria: Thomson Reuters Trust Principles.

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