19 degrees of panic

There is an old folk saying: “It could always get worse”. Alas, it appears the people in charge of Europe are unaware of it, which is a pity because it is a very motivational saying, since the silent continuation is “So you might want to do something to prepare.” This week, things in Europe just got a lot worse and I don’t even mean Nord Stream 1.

I think I mentioned the so-called liquidity problem of European energy firms in my Monday post and the reason I say so-called is because “liquidity problem” is a fancy way of saying bailout and we don’t want to say bailout because it might cause panic.

Now, I don’t know about the word bailout but Equinor’s warning that European energy firms are facing a margin call wave of 1.5 trillion euro is certainly worth panicking. And that’s the conservative estimate.

Here’s how Reuters summarises the problem and I’m pasting their explanation because I can’t put it better: “Utilities often sell power in advance to secure a certain price, but must maintain a "minimum margin" deposit in case of default before they supply the power. This has raced higher with soaring energy prices triggered mainly by Russia slashing gas supplies to Europe, leaving firms struggling to find cash.”

I might not be able to put it better but I can certainly take a stab at paraphrasing it. Utilities often speculate on the power market in a bid to make more money but when the market turns against them it’s bailout time.

Too harsh? Then why is the EU considering a temporary suspension of power derivatives trading? I’m certainly not the one trading power derivatives and neither are the millions facing multifold higher power bills. But we’re going to foot that bill, too.