ENGIE SA – Interim report – 30 June 2022
MANAGEMENT REPORT (extracts)
1.3 Financial and physical exposure to Russian gas significantly reduced
Since March, ENGIE has undertaken several measures to significantly reduce direct exposures arising from the risk of interruptions to Russian gas supplies.
Limited financial exposure including in scenario of complete cut in gas flows from Russia
With respect to financial exposure, with the benefit of proactive hedging actions, of which the cost was fully expensed in H1, and management of the overall gas portfolio, even in the extreme event of a sudden complete halt in Russian gas deliveries, the Group would only be exposed to a one-off short position of c. 4 TWh.
Physical exposure substantially reduced
On physical exposure, for the winter of 2022-23, through a combination of intrinsic length in the portfolio; additional gas through new pipeline gas; and LNG contracts, ENGIE has substantially reduced the previous exposure to volumes procured from Gazprom. Residual volumes, at c. 4% of ENGIE’s total European requirements to supply its BtoB, BtoC customers and for consumption for its own CCGT power plants, are now well within the normal range of volatility that the Group manages on an ongoing basis, e.g., for volume changes due to weather.
Similarly, for the winter of 2023-24, the Group is confident that additional volumes contracted through new supply sources including LNG, together with an expected decrease in demand will help replace the need for Russian volumes and reach required its storage levels in case of a full cut of Russian flows.
On Nord Stream 1, the Group has reviewed the valuation of its 9% stake, due to the heightened risk profile of its unique customer, Gazprom, reducing therefore its value to €305 million, down €259 million compared to December 31, 2021. This change in fair value does not affect the profit and loss account, as it is taken directly to ENGIE’s equity.
As indicated previously, on Nord Stream 2, the Group, as a lender, was exposed to €987 million of credit risk as of December 31,2021, including the value of the loan provided plus the accrued interests. ENGIE has recognized, as of March 31, 2022, a €987 million credit loss for the loan and accrued interests. This non-operating credit loss did not impact the Group’s recurring P&L.
1.5 Update on Belgian nuclear assets
On 18 March 2022, Belgian government announced its decision to revise its energy policy in light of the unprecedented geopolitical situation, and asked ENGIE to extend the operational lifetime of the Doel 4 and Tihange 3 reactors until 2035.
On 21 July 2022, ENGIE, through its subsidiary Electrabel SA, and the Belgian State have signed a non-binding Letter of Intent to assess the potential feasibility and terms of this extension.
The objective is to negotiate and agree a binding legal agreement by 31 December 2022, while ensuring a balanced distribution of risks and opportunities that offers each party stability and a fair transaction structure for the long term.
The Letter of Intent comprises a number of inseparable conditions, among which:
- the extension of the operating period of Doel 4 and Tihange 3 for 10 years, considering a period of 5 years from the signing of the heads of terms. The Parties are willing to discuss and agree the conditions that would allow for the restart of both units in November 2026. This agreement will also include all the economic conditions of the extension,
- the set up of a legal entity to manage the two units with the participation of the Belgian State and Electrabel on a 50:50 basis,
- a cap on future liabilities and costs for the management of nuclear waste and spent fuel of all units in the form of a fixed amount to be determined, including a premium to cover future uncertainties, to be fixed after review by the relevant authorities (CPN and ONDRAF).
ENGIE will continue to work constructively with the Belgian State towards supporting the security of supply for Belgium.
NOTE 9 NET FINANCIAL INCOME/(LOSS) (extract)
Losses from debt and equity instruments amounted to €1,149 million in first-half 2022. This amount mainly includes the impairment of the loan granted to Nord Stream 2 for €987million and the negative change in fair value of money market funds held by Synatom for €245 million (positive €118 million in first-half 2021).
12.1.1 Other financial assets (extract)
The Group’s equity instruments amounted to €1,716 million at June 30, 2022 of which €908 million in listed securities.
This amount includes the minority interest held by the Group in Nord Stream AG now valued at €305 million, down €259 million compared to December 31,2021 due to the heightened risk profile of Nord Stream’s single customer, Gazprom. This change in fair value does not affect the income statement, as it is recorded as a reduction in other items of the statement of comprehensive income.