Europe Girds for Energy Market Turbulence After Russian Gas Cut

Governments in Sweden and Finland offered billions of dollars of guarantees to utilities to prevent a meltdown in energy trading when markets open Monday after Russia shut down natural-gas flows through a major pipeline to Europe. 

Traders, analysts and energy executives say prices for natural gas and electricity—already at elevated levels—are likely to jump after state-controlled Gazprom PJSC extended a halt to flows through Nord Stream late Friday. Moscow blamed the suspension on technical problems. 

European governments described it as an economic attack in retaliation for their support of Ukraine. Officials fear the loss of imports through Nord Stream could lead to a further leap in power prices and saddle utilities with cash payments to energy trading exchanges that they may struggle to meet. A wave of failed payments could undermine financial stability, officials said.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Economic Affairs Minister

Mika Lintilä

said Sunday. 

Swedish and Finnish government officials worked through the weekend on programs designed to make sure electricity producers can meet exchange payments known as margin calls. Stockholm is home to


Clearing AB, a subsidiary of

Nasdaq Inc.

that processes most derivative trades in the Nordic power market, which includes Finland and the Baltic countries.

Under the Swedish plan, the government would provide guarantees to eligible companies, which could then use the guarantees to borrow from banks and pay the exchange clearinghouse. The Swedish government would have license to extend up to 250 billion kroner, or $23 billion, in guarantees, said a finance-ministry official.

The Finnish government plans to offer 10 billion euros, or $10 billion, in guarantees. 

Nasdaq Clearing spokesman David Augustsson said the measures would help the power market act in an orderly manner Monday. “This is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability,” he said.

Last week, European Energy Exchange AG, the main European venue for power trading outside the Nordics, said Germany and other European Union members should help companies fund margin payments. A spokesperson didn’t respond to requests for comment on Sunday.

Russia’s state-controlled Gazprom PJSC extended a halt to flows through the Nord Stream pipeline late Friday.



Armed with the guarantees, utilities and other energy companies would find banks more willing to lend money to cover margin payments, the Swedish official said. The Swedish parliament will vote on the program Monday and it would take effect the same day if approved. One concern is that the clearinghouse itself might default, the official said.

“This threatens our financial stability. If we don’t act soon it could lead to serious disruptions in the Nordics and Baltics,” Swedish Prime Minister Magdalena Andersson said Saturday at a news conference outlining the plan. “In the worst-case scenario we could fall into a financial crisis,” Ms. Andersson added.

When utilities agree to deliver gas or power, they lock in prices by selling futures contracts. Exchanges charge one payment, known as initial margin, when trades are placed to collect collateral. They then call for or return money each day depending on whether the position gains or loses value.

As prices rise, utilities’ short positions shed value and the companies pay the exchange. They recoup the money when they deliver gas or power, but the difference in timing has led to massive outflows of cash that some firms have struggled to fund. At times a vicious cycle has emerged in which extreme price moves boost margin calls, prompting companies to bail out of trades and sparking more volatility.

“No one’s got the money to pay to trade,” said Justin Colley, an analyst at Argus Media. “Putting up these margin payments every day is just causing problems for everyone—not just the small companies, but also the big companies, the national utilities.”

The guarantees could add to the mounting cost for governments of aiding households and businesses through a historic rise in energy prices largely caused by Moscow’s move to cut gas exports. On Sunday, Germany unveiled its third energy relief package this year, worth 65 billion euros, to shield consumers.

European gas and power prices have been wildly volatile. They shot to records in late August before slumping last week after the European Union said it would change the structure of the power market to bring down prices for consumers and businesses. Nordic and Baltic prices have been especially turbulent, in part because a drought curbed hydropower generation in Norway.

Tom Marzec-Manser, gas analyst at ICIS, said he expected gas and electricity prices to rise again Monday in response to Gazprom’s shut-off. “Meeting demand, whatever that might turn out to be, is going to be that much harder,” he said.

To a certain extent, energy markets were already girding for Russia to completely cut off gas supplies. Gazprom had reduced Nord Stream flows to 20% capacity in the weeks before the shutdown.

Some factors could act to bring prices down after an initial leap, traders and analysts said—including the action taken by Nordic governments. Weather forecasts suggest there might be greater power generation from wind farms, reducing demand for gas. 


one of the two biggest buyers of Russian gas in Europe until recently, said last week it had fully drawn down a 9 billion euro credit line from German state lender KfW. The company said it had asked to borrow an extra 4 billion euros to make margin payments and buy gas to make up for lost deliveries from Gazprom.

Write to Joe Wallace at

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