Fortum’s Uniper is largely at the mercy of Russian gas supplies – Nord Stream was shut down on Monday, the losses are only increasing

Will gas flow at all after July in the Nord Stream 1 pipeline from Russia to Germany? European companies, political decision-makers and especially the Germans will be keeping a close eye on it in the coming weeks.

On Monday morning, gas stopped flowing at the bottom of the Baltic Sea due to maintenance work for at least ten days. In Germany, Russia’s further actions are expected with mild horror. The Kremlin may respond to the EU’s economic sanctions by closing the pipeline completely.

Even earlier, the amount of gas sold to Germany by the Russian state company Gazprom has decreased to less than half of the pre-war level.

EU countries are trying to replenish their gas reserves for the winter, and Russia may try to derail these plans by ending gas supplies to its liking.

Uniper, a subsidiary of the Finnish company Fortum, is Germany’s largest gas broker. Until spring, Uniper received cheap gas from Gazprom and passed it on to its European customers with fixed-price gas contracts.

Now the company has to get the gas it promised its customers from elsewhere. The price of gas has multiplied during the beginning of the year, and there is no sign of a leveling off in the prices.

CEO of Uniper Klaus-Dieter Maubach estimated at a press conference on Friday that the higher price of gas causes Uniper losses of several tens of millions of euros per day. Closing the Nord Stream pipeline will double the company’s daily loss.

OP calculates in its Monday morning review that this could cause the gas company to lose two billion euros on a monthly basis.

– When we started the Uniper deal, we knew that there were risks, and now they are coming true, Finnvera’s chief economist Mauri Kotamäki said Ykkösaamu on Monday.

Fortum is conducting negotiations about Uniper’s situation directly with the German government. The Ownership Steering Department of the Office of the Finnish Government is also negotiating with the German authorities.

On Monday, Fortum did not want to comment on the progress of the negotiations.

– Constructive discussions with the German government continue. No decisions have been made. At the moment, we have nothing else to say, the company’s communications department acknowledged in an email to Uutisi.

Uniper CEO Maubach told a press conference on Friday that Uniper and Fortum have submitted their own separate proposals for further actions to the German government.

There are several options. The worst option is that Uniper goes bankrupt. This is unlikely to happen, because Uniper is a strategically very important company for the German state.

In Fortum’s presentation, business activities central to the German energy system could be separated from Uniper’s other operations. The German government would take them over and set up a separate “security of supply” company for them, which it would have to capitalize generously.

The detachable part could be, for example, Uniper’s German gas business, but hydropower or nuclear power could remain in the “old” Uniper. The ownership structure of the remaining Uniper will then also change.

It will be decided later what Fortum’s future share of the company could be worth.

The German state can also support Uniper by giving it the right to transfer the increased gas prices to the final prices charged to customers. Now the company has to supply its customers with more expensive gas, purchased from other places than Russia, and suffer losses in its own skin.

Fortum will probably have to record large losses from Uniper in its results. It first bought 47 percent of Uniper in 2018 and has since increased its holding to 78 percent. The Finnish state, i.e. the taxpayers, owns 51 percent of Fortum.

Fortum has paid a total of just under seven billion euros for Uniper’s shares. Now the company’s market value has collapsed. Even before the Russian war of aggression, Uniper’s share cost 40 euros, while its value was already less than 10 euros on Monday.

The state’s dividend income from Fortum will probably decrease.

Fortum records a slice of Uniper’s growing losses corresponding to its ownership stake. Earlier this year, Fortum additionally financed Uniper with around eight billion euros, part of which was an internal loan and part of collateral. You may not be able to get this subsidy back from Fortum.

The size of the losses of Fortum and Uniper’s shareholders will only be revealed later.

For example, OP’s economists estimate that Uniper’s most valuable assets are the hydropower plants located in the Nordic countries and Germany. According to OP’s economists, Uniper’s nuclear power is also “competitive”.

Fortum already said earlier this year that it will have to write down more than two billion euros in its Russian operations. Together with Uniper, it has had a total of 12 power plants and approximately 7,000 employees in Russia.

Russia produced more than 700 billion cubic meters of gas last year. More than half of it is used in Russia. Russia has brought just under 200 billion cubic meters to Europe. The rest goes to other markets such as China.

When stopping gas supplies, European Russia will have to close gas fields and store huge amounts of excess gas.

Russia will lose the sales revenue it received from gas, but there will not be very big other losses for it due to the end of deliveries to Europe, estimates Saksalaislehti Handelsblatt. (you switch to another service)