Germany and the EU grapple with Natural Gas Prices - comment

Natural gas suppliers have been seen as marvellously dull and ideal assets for a bond investor, driven by fees and regulated return on infrastructure. The Ukraine war has turned natural gas into a strategic industry as prices have risen. Recent economic news from Germany points to an increasingly severe impact on the German economy from the soaring natural gas prices. The German company, Uniper is already in bail-out talks with the German Federal government over the cost of being ordered by (Federal Law) to secure supplies even as Russia turns down the taps. The decision by the EU to mandate minimum storage capacity utilisation is going to further turn up the pressure on the gas suppliers as they will be forced to ensure their storage units are substantially full going into next winter. Forcing private or semi-state wholesale gas suppliers to fund spiralling costs of natural gas in the name of EU solidarity will need the intervention of individual states and the EC-mandated limits will provide top cover from competition regulators when states are forced to offer either bail-outs or other means of financial support.

The EU storage capacity covers around 25% - 30% of EU winter demand, under new legislation from the EC the minimum level of capacity utilisation on November 1 will be 80%, rising to 90% next year. The percentages aren't out of line with normal EU levels over the last 10 years but the cost will be much higher.

Source: ENTSOG,GIE, Sarria