Volkswagen Set for Multimillion-Euro Windfall on Gas Trade

16 Sep 2022

Volkswagen AG is set to receive hundreds of millions of euros in trading profits as it offloads a massive natural-gas hedge, selling large amounts of fuel it previously purchased back into the German market.

Europe’s largest car-maker has directed the sale of 2.6 terawatt-hours worth of gas contracts, according to a document seen by Bloomberg News. That’s enough gas to run about 200,000 normal, gas-heated homes for a year.

Gas prices are now trading many times higher than their levels when VW purchased the supply, due to an unprecedented energy crisis in Europe. Based on recent prices, VW could be set to receive around 400 million euros ($399 million) in profit, according to Bloomberg calculations.

The company had planned to use the gas next year at its two power plants in Wolfsburg as part of a fuel switch away from coal. However, the price surge, combined with economic and political pressures to conserve the fuel, have led the VW to sell it and stick to coal for now, according to people familiar with the matter.

The advance purchases -- known as hedges, to protect against price volatility -- were bought through supplier Wingas GmbH on Trading Hub Europe as far back as 2020, when the market price was around 30 euros per megawatt-hour, one of the people said.

Gas futures on the hub are now trading near 200 euros per megawatt-hour. The windfall from the sale is highly dependent on how the market price changes as the hedges are gradually sold off over several weeks.

A spokesperson for VW declined to comment on internal business transactions.

Soaring prices have triggered an unprecedented energy crisis in Europe

The trade is just one example of the impact of the crisis, as businesses across the continent face soaring costs. Russia slashed gas supplies to the European Union in the fallout of its invasion of Ukraine, forcing the bloc to take emergency steps to shield consumers and companies from financial pain ahead of winter.

Earlier this year, VW’s commodity trading secured another major profit. The company saw its gains from hedging positions on commodities like nickel add 3.5 billion euros to its first-quarter earnings.

Also See: Mercedes May Sell Gas Back to Grid to Help With Supply Crunch

The German government in particular has urged energy-intensive industries to conserve gas to ensure there’s ample storage, and utilities are finding it more cost-effective to burn coal for power production.

That affects the economic calculations for assets like the coal-fired power stations at VW’s sprawling manufacturing facility in Wolfsburg, in northern Germany. The two stations -- which deliver power and heat for the plant and city -- had been planned to be converted to burn natural gas. That has been postponed due to the energy crisis.

Profits from VW’s gas sale are due to be used to offset the costs associated with using coal or oil fuels and replacing or retrofitting machinery, a person familiar with the matter said.

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