Energy supplier Uniper on the brink of extinction

The energy supplier Uniper is Germany’s largest gas supplier, and also the largest buyer of Russian natural gas. As a large intermediary, Uniper primarily supplies gas to municipal utilities. Since mid-June, Uniper has received only 40 per cent of the agreed delivery volumes from Russia. Therefore, the energy supplier has to buy the missing 60 per cent at horrendous prices on the spot market. Due to the contractual agreements, however, the energy supplier cannot pass on these costs to its customers. This is why Uniper is making a loss of 900 million euros per month and is threatened with insolvency in the near future.

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Germany’s largest gas supplier faces insolvency

Uniper is systemically relevant as an energy supplier. The group supplies hundreds of municipal utilities and companies with gas. Now the group is asking for state help to avoid bankruptcy. According to Ingbert Liebing, CEO of the Association of Municipal Enterprises (VKU), it is a matter of saving the entire energy supply system from collapse. Economists speak of a possible Lehman Brothers effect in the Uniper case. When the investment bank Lehman Brothers became insolvent, this brought the world financial system close to complete collapse. Like dominoes, one financial institution after another toppled over worldwide until the affected states intervened and guaranteed state aid. The same is now threatening the gas supply.

Energy supplier Uniper is on the brink of bankruptcy. Germany's largest gas supplier faces insolvency. State must step in
Energy supplier Uniper is on the brink of bankruptcy. Germany’s largest gas supplier faces insolvency. The state must step in.
Image: Glen Dillon, CC BY 3.0, via Wikimedia Commons

Uniper covers 40 percent of German gas demand

Uniper has a supply contract with Russia for around 24 billion cubic metres of gas per year. This contract has been running since 2006 and has a term, with corresponding price fixing, until 2036. Uniper thus covers 40 percent of Germany’s total gas demand. If Uniper goes bankrupt, it will trigger a domino effect that will cause financial problems for countless other utilities. Therefore, the government has no choice but to financially support Uniper.

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To do this, the state really only has two options.

With the second alert stage of the emergency plan, the federal government has introduced the so-called price adjustment mechanism. The state could enact section 24 of the Energy Security Act. This would mean that gas suppliers would no longer be bound to the contractually agreed prices and could pass on market prices to their customers. However, this would then put many companies and private consumers in payment difficulties.

The second option would be for the state to participate by contributing equity. This would partially nationalise the energy provider. Then the costs would ultimately be borne by the taxpayers. Economics Minister Habeck has already warned of a domino effect at Uniper. However, he left open whether Saat wants to take a stake in the company.

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Opening of Nord Stream 2 could solve problems

In principle, there would be a third possibility, namely to purchase gas via Nord Stream 2. This would also bring gas prices down significantly again. However, the German government has become so ideologically entrenched in its energy policy that it would rather accept an economic collapse.

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