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Scholz confirms Germany’s intention to buy 30% of Uniper shares

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Gas crisis forces EU governments to use this mechanism more and more often.

German Chancellor Olaf Scholz at a press conference in Berlin, said that the German government will buy 30% of the shares of the energy concern Uniper to save the company during the financial crisis amid falling gas supplies from Russia, reports the German newspaper Hadelsblatt. 

According to him, the shareholders and the Finnish government have informed the German authorities about the agreement. Uniper shares will be bought back at a face value of 1.7 euros per share, he said. In total, the government will buy back about 157 million common shares worth 267 billion euros. 

It is also specified that the German government will finance the company for 7.7 billion euros as part of aid to Uniper in the financial crisis. Also, the state development bank (Kreditanstalt fur Wiederaufbau, KfW) will have to increase the amount of loans from 2 billion to 9 billion euros.

The government also noted that 90% of the additional costs for the company to purchase more expensive energy from other suppliers will be distributed among consumers. The mechanism will come into force on October 1. According to the chancellor, the fee will cost each family of four about 200-300 euros a year. 

In early July, Uniper, in which the Finnish company Fortum owned a 78 percent stake, asked the German government for help. After Gazprom cut its gas through Nord Stream by 60%, the company began buying hydrocarbons from alternative suppliers at prices significantly higher than those specified in its contract with the Russian supplier.

Fortum of Finland will hold 56% of the shares and will maintain its status as the power concern’s blocking shareholder upon completion of the deal. 

Uniper is the majority owner of the Russian power generating company Unipro, owning 83.73% of its shares. Uniper started the process of selling its stake in Unipro at the end of last year, but it was halted this spring. The company said it would continue the process of selling its stake in the Russian asset as soon as possible.

Uniper is Germany’s largest importer of Russian gas

July 18, Reuters reported that the concern has received a letter from Gazprom with a message of force majeure circumstances on the supply of gas from June 14. The agency specified that Gazprom explained the inability to meet contractual obligations to export gas “extraordinary circumstances beyond its control”. Uniper said the statement was unfounded and officially denied force majeure.

According to Reuters, Gazprom has also sent a similar letter to RWE. In mid-June, exports of Russian gas through the pipeline Nord Stream (55 billion cubic meters of gas per year) decreased by 40% because of problems with the equipment being repaired in Canada. On July 21, Nord Stream resumed its flow, but only 40 percent of the pipeline was used.

The German government is implementing a “soft” nationalization scenario for Uniper

The German government agreed on a project for the nationalization of energy companies back on July 5, which, however, did not point to Uniper directly at that time. Now we are talking about nationalization of the stake in the company with compensation of its value to shareholders. De jure, the transfer of shares in state ownership is formalized as a market transaction, but Uniper could not fail to sell its shares.

Against the background of the energy crisis, similar mechanisms of nationalization of the infrastructure of oil and gas companies may be used in other EU countries in relation to other market players.

In late June, the German Finance Ministry came up with the initiative to nationalize the German part of the gas pipeline Nord Stream – 2 (designed capacity – 55 billion cubic meters per year), reported Spiegel, citing sources. 

But the acquisition of Uniper by the German government should be seen more as an anti-crisis management than as a new, deliberate change in state policy. The energy market in the EU in general and Germany in particular is in crisis not only because of the decline of gas supplies from Russia: it is also affected by a sharp increase in spot prices, to which long-term contracts were tied, the lack of available volumes on the market, the decline of own production in the EU and a lot of other factors.

In Europe, spot gas prices remain high. On July 22, the TTF hub in the Netherlands had an August futures price of about $1,700 per 1000 cubic meters.

Commodities

Oil prices settle lower after weak August jobs report adds to demand concerns

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Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand. 

At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.

U.S. economic slowdown worries resurface after weak jobs report

The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.

Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.

Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.

Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.

U.S., Europe working on Iran sanctions 

Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia. 

The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine. 

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Commodities

Goldman Sachs expects OPEC+ production increases to start in December

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(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.

OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.

However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.

The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.

© Reuters. FILE PHOTO: A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. REUTERS/Leonhard Foeger/File Photo

“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.

Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]

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Citi, Bank of America see oil prices potentially going to $60

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Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.

While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.

“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.

They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.

“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.

OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.

Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.

The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.

“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.

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