# Europe power firms need 1.5 trillion euros in margin calls, Equinor says
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-07
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: European Energy Companies Need 1.5 Trillion Euros Amid
Meta Description: Equinor estimates European energy companies need €1.5 trillion to cover exposure to rising gas prices, with no UK firms included. Governments provide support,
URL: https://financedigest.com/europe-power-firms-need-1-5-trillion-euros-in-margin-calls-equinor-sayshtml

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By Marwa Rashad

LONDON (Reuters) -European energy companies need at least 1.5 trillion euros ($1.5 trillion) to cover the cost of their exposure to soaring gas prices, Norwegian energy group Equinor has estimated, and that does not include firms in Britain.

Several European countries are providing billions of euros in support to power suppliers caught out by extra collateral payments on their trades – known as margin calls – but Equinor’s estimate suggests such support is a fraction of the overall bill.

Utilities often [sell power in advance to secure a certain price](https://www.financedigest.com/3-tricks-to-get-a-better-price-when-selling-your-car.html "3 Tricks To Get a Better Price When Selling Your Car"), 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](https://www.financedigest.com/tesla-expands-discounts-with-price-cuts-in-europe-singapore-israel.html "Tesla expands discounts with price cuts in Europe, Singapore, Israel"), leaving firms struggling to find cash.

Helge Haugane, Equinor’s senior vice president for gas and power, told Reuters that in Europe excluding Britain, the total of such margin calls was probably more than 1.5 trillion euros, squeezing market liquidity and [leaving a number of small- and medium-sized firms](https://www.financedigest.com/uk-oil-gas-firms-to-leave-years-worth-of-output-in-ground-with-tax-hikes-report.html "UK oil, gas firms to leave year’s worth of output in ground with tax hikes-report") struggling.

“It is a function of the price, it keeps going up and up,” Haugane said, adding this also needed government intervention.

The market can function a lot better than what it is doing right now further out in the curve because [people don’t have enough liquidity to play,”](https://www.financedigest.com/55-of-people-who-regularly-play-sport-dont-think-being-verbally-abusive-to-another-player-makes-them-a-bad-sport.html "55% OF PEOPLE WHO REGULARLY PLAY SPORT DON’T THINK BEING VERBALLY ABUSIVE TO ANOTHER PLAYER MAKES THEM A BAD SPORT") he said on the sidelines of an international gas conference in Milan.

Gas prices, which have soared to five [times their level a year](https://www.financedigest.com/german-tax-revenues-fall-in-august-for-first-time-this-year.html "German tax revenues fall in August for first time this year") ago in the wake of Russia’s Feb. 24 of Ukraine, jumped further on Monday after Moscow shut the major [Nord Stream](https://www.financedigest.com/denmark-invites-nord-stream-operator-to-help-salvage-unidentified-object.html "Denmark invites Nord Stream operator to help salvage unidentified object") 1 gas pipeline indefinitely.

[PRICE CAP](https://www.financedigest.com/eu-meets-to-try-to-break-gas-price-cap-impasse.html "EU meets to try to break gas price cap impasse")

Haugane said he believed that wide-scale demand reduction would be the only feasible short-term solution to [Europe’s power](https://www.financedigest.com/edf-edison-ansaldo-team-up-to-develop-nuclear-power-in-europe.html "EDF, Edison, Ansaldo team up to develop nuclear power in Europe") crisis if Russia cuts off all gas supply.

He also said that a European Union proposal to [impose a price cap](https://www.financedigest.com/oil-prices-rise-after-opec-keeps-output-steady-russian-price-cap-imposed.html "Oil prices rise after OPEC+ keeps output steady, Russian price cap imposed") on imported gas and gas used to produce electricity would not solve the continent’s underlying problem.

In case the Russian volumes halt completely, the demand reduction needs to be even larger than what we so far have experienced, and no price cap or anything like that can [solve the underlying problem,”](https://www.financedigest.com/british-start-up-reveals-the-secret-to-solving-the-problem-of-identity-fraud.html "British start up reveals the secret to solving the problem of identity fraud") Haugane said at the Gastech conference.

EU ministers will discuss in a meeting on Friday a number of 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](https://www.financedigest.com/stellantis-to-invest-130-million-euros-in-german-plant-for-new-opel-electric-car.html "Stellantis to invest 130 million euros in German plant for new Opel electric car") prices.

Advocates of the [price cap say](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") that it would prevent some derivatives transactions to avoid margin calls but Haugane was sceptical.

[Demand reduction “is very hard political work for those who can do something about that….but there is no other fix](https://www.financedigest.com/eu-demands-quick-fix-from-u-s-of-green-subsidy-law.html "EU demands quick fix from U.S. of green subsidy law") in the short term.

The EU in July [asked its 27 member states to reduce gas demand voluntarily by 15%](https://www.financedigest.com/eu-asks-countries-to-cut-gas-demand-by-15-until-spring.html "EU asks countries to cut gas demand by 15% until spring") this winter, with mandatory cuts possible in case needed. However, governments have been slow to reduce consumption.

($1 = 1.0108 euros)

(Reporting by Marwa Rashad; Additional reporting by Francesca Landini; Editing by Emelia Sithole-Matarise)


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