By Geoffrey Smith
Investing.com -- German energy giant Uniper (ETR:UN01) could be insolvent within a matter of days, a board member claimed on Friday.
“It is clear that Uniper cannot wait weeks, but needs help in a few days,” Harald Seegatz, deputy chairman of the supervisory board, told Bloomberg, adding that insolvency was a real threat if that help doesn't materialize.
Seegatz's claim reflects the dramatic deterioration in Europe's energy balance as Russia reduces gas supplies in response to U.S. and European sanctions that aimed to punish it for its invasion of Ukraine. French President Emmanuel Macron warned in an interview on France's national Bastille Day holiday on Thursday that Europe should be prepared for a complete cut-off.
"It will use gas as a weapon of war," Macron said, pointing to the fact that Gazprom (MCX:GAZP) has now completely stopped sending gas through the Nord Stream 1 pipeline to Germany.
Flows through Nord Stream fell to zero at the start of this week as a period of scheduled maintenance began. But they had already been cut by 60% due - so Russian gas monopoly Gazprom claimed - to the absence of compression equipment detained in Canada under its sanctions legislation. Gazprom has chosen not to offer delivery via alternative pipelines which currently have spare capacity and warned on Thursday that it couldn't guarantee regular supplies even when the equipment returns thanks to a Canadian government waiver.
In the meantime, Uniper has been buying natural gas on the spot market at record high prices to cover its shortfall, but the German government has not yet allowed Uniper to raise its own contract prices for customers, fearing the effect this would have on Germany's industrial base. The Finnish government, which controls Uniper's majority shareholder Fortum (HE:FORTUM), has also reportedly refused to inject any more money into the company. As a result, Uniper is hemorrhaging money, and the resulting cash shortage has forced it to start drawing down gas that it holds in storage for the coming winter.
Data from Gas Infrastructure Europe suggest that Uniper’s storage sites in Germany are now around 58% full, down 60% at the start of the week. Any continuation of that trend will make it effectively impossible for Germany to reach its target of raising storage levels to 90% by the start of winter, and force it to activate the final stage of its three-stage gas emergency plan, which foresees rationing to industry as a last resort.