Europe Needs Nord Stream 2: Fortum

Europe needs more gas to replace declining gas production at home and Fortum stands behind Uniper's decision to invest in Nord Stream 2, Fortum CEO Markus Rauramo told analysts on a conference call August 19 dedicated to the second-quarter results. The German company became a subsidiary of Fortum at the end of March; previously it had been an associated company.

As Germany phases out coal and nuclear there will be a massive need for new generation capacity: while renewables will play a part, natural gas will be needed, he said.

Uniper's CEO Andreas Schierenbeck had told analysts August 11 that the company's loan to Gazprom to build the line, which was one of five equal loans from European energy firms to Russian monopoly Gazprom, might have to be impaired if the line were not completed. The US has threatened further sanctions on entities involved in the line, including the logistics port of Mukran in Germany.

"Uniper has fully paid up and the gas will be needed for security of supply. We see this as a commercial project and we stand by it," Rauramo said. "Europe needs more supply, not less and the volume is enough to offset declines from Norway, the UK and the Netherlands. This gas must come from somewhere." He also said that 24 EU member states had made their position supporting the line known to the US. Poland and Lithuania may have been among the three members that did not sign.

The Finnish company now owns 75.01% of Uniper, having added another 1.6% August 18, but he did not say what the point of that small additional holding was, when asked. Rauramo also repeated the company's decision not to exercise a squeeze-out of the other Uniper shareholders until at least the end of 2021.

Analysts had asked whether Fortum might have to take full ownership if it wanted to close its Russian power generation business, Unipro, which is a carbon-emitting business. Schierenbeck had said Unipro was the "third leg" of Uniper's business and could not be disposed of without threatening the stability and credit rating of the rest of the company.

According to one analyst, two thirds of the expanded Fortum's carbon footprint now lies in Russia, but Rauramo said that more detail of the joint strategy to decarbonise would not be revealed until the capital markets day in December, along with other plans to reshape the company through disposals and investments while retaining its BBB credit rating.

Rauramo, who became CEO in early July, said the enlarged company would continue to reduce its coal-based production and pursue decarbonisation through growth in clean energy and, as part of the joint strategy, set new climate targets for the whole group. Given the problems of Covid-19, he said: "We are focusing on optimising cash flow, maximising our profitability, prioritising our capital expenditure, and continuing the optimisation of our portfolio."

Fortum's earnings were boosted by its greater shareholding in Uniper but for both companies the summer quarters are the weak part in the trading year. Heavier than usual rainfall lowered power prices in the Nordic region, but hedges largely protected it. Pretax earnings (Ebitda) for Q2 were €512 ($611)mn, up from €372mn last year. The operating profit was up sharply from €184mn to €534mn, but on a comparable basis it was down, from €232mn to €207mn.