Market: Berlin will assume the risks associated with €216 billion of Uniper derivatives

by John O’Donnell and Christoph Steitz

FRANKFURT (Reuters) – Having already mobilized almost 500 billion euros to combat the consequences of the energy crisis which is hitting the country hard, the German government will also have to take on the risks associated with the 216 billion euros in derivatives produced of the energy. giant Uniper.

The nationalization of Uniper, hit hard by the stoppage of Russian natural gas supplies, is the biggest rescue plan for a company ever implemented in Germany.

The gas giant has recorded billions of euros in losses on derivatives, such as futures, since the start of the war in Ukraine. But its difficulties do not stem from Russian aggression and Moscow’s decision to cut gas to Europe, as the group had already had to turn to German state bank KfW for aid worth two billion euros.

Reuters has relied on the latest financial statements from Uniper to calculate for the first time the total amount of its exposure to the arriving products, a sum which the company has confirmed.

“In total, we had derivative positions of approximately 216 billion euros as of September 30, 2022,” said a Uniper spokesman, who said only a small portion of those positions are high risk.

“Our speculative product positions are only a few million,” he added.

According to its accounts, at that time Uniper had in its assets around 198 billion euros in receivables on derivative instruments.

Whether used for hedging or speculative purposes, derivatives involve risk. If the market price falls well below or, conversely, exceeds the price of an option, the cost of this position to the company may increase.

To protect themselves against major price fluctuations, traders place collateral, often in cash, with clearing houses. These safe havens have exploded with the recent rise in energy prices.

BAD GOVERNMENT DISCRETION?

Uniper’s outstanding positions could lead to further losses for the company depending on how those prices move in the future, a person familiar with the matter told Reuters.

This risks increasing the bill for the German government, which has already planned to allocate more than 51 billion euros to support plans and the upcoming nationalization of Uniper.

The gas giant’s shareholders are expected to approve its nationalization at an extraordinary general meeting scheduled for December 19.

Uniper reported losses of 40 billion euros in the first nine months of the year, 10 billion of which came from replacing Russian gas with more expensive liquefied natural gas.

The group has also recognized 31 billion euros in expected future losses related to “valuation effects on derivatives and provisions” related to lower Russian gas supplies, Uniper said in its latest quarterly report.

These estimates were based on energy prices at the end of September, which have fallen significantly since that date.

“We have to assume that Russia will continue to stop supplying us with gas and that we will incur further losses. Without (…) supplies of Russian gas, the gas sector will suffer losses until the end of 2024”, says the spokesman.

A source close to the government said it feared the finance and energy ministries may have underestimated the risks associated with derivatives in their estimate of the full cost of rescuing Uniper.

A spokesman for the Ministry of Economy wanted to be reassuring, saying that the losses caused by certain positions could be offset by gains on other derivatives.

The situation remains difficult for Uniper, whose volume of obligations linked to derivatives has increased 2.5 times compared to the end of 2021, and whose exposure to this type of product was, at the end of September, six times higher than the exposure of the oil giants BP or Shell.

It is also much higher than that of German energy company RWE, which stood at 131 billion euros at the end of June, according to available public data.

(Reporting by John O’Donnell and Christoph Steitz, French version by Tangi Salaün, editing by Kate Entringer)

Copyright © 2022 Thomson Reuters

Leave a Comment