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How European Utilities Can Survive $1 Trillion In Margin Calls

European energy utilities might be facing a margin call bill of a trillion euros (~$1 trillion), according to a business consultancy.

The companies, however, are in a strong enough position to survive the call as long as governments lend a hand in the form of state-backed loans, Baringa analysts said, as quoted by the Financial Times.

“A lot of the strain that we’re seeing are companies that need financing for trading but aren’t facing insolvency because actually, if they’re on the producing side of the market, they’re benefiting from high prices in the physical market,” explained Nick Tallantyre, global head of Baringa’s energy and commodities trading division.

He went on to say that once the power that a utility produces is indeed produced, the utility will get enough money to be able to repay any state-backed aid it may have received to cover its margin call right now.

“It’s a short-term cash pinch and governments should issue loans but they should feel confident they will be repaid,” Tallantyre told the Financial Times.

The consultants’ estimate is substantially lower than the margin call estimate Norway’s Equinor released earlier this month. In its conservative scenario, Equinor said, European energy utilities faced a margin call bill of 1.5 trillion euro, equal to virtually the same amount in U.S. dollars.

Several European governments are already providing billions in financial support for energy utilities but against the background of a trillion-euro bill, a few billion will be far from enough.

EU energy ministers are meeting today to discuss ways to handle the energy crisis, with proposals made earlier this week by the European Commission including a cap on electricity prices. This, if approved, could interfere with utilities’ revenues, especially as a cap on revenues for certain utilities is also on the table as a crisis-coping potential measure.


By Irina Slav for Oilprice.com

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