Uniper SE

XETRA:UN01

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the Analyst and Investor Conference Call of Uniper.

At our customer's request, this conference will be recorded. [Operator Instructions]

May I now hand over the floor to [ Adam Rich ], who will start the meeting today. Thank you.

[Unknown Executive]

Thank you very much. Good morning, and welcome to our conference call today.

Following up on yesterday's ad hoc announcement, we would like to take this opportunity and lead you through the details of our preliminary results for the first quarter of 2022 already today. The final set of numbers, including the quarterly statement and the usual full IR presentation, will be published on the 3rd of May as scheduled, but focusing on today, our CFO, Tiina Tuomela, will guide you through the presentation. But also joining us today is our Chief Commercial Officer, Niek den Hollander, who together with Tiina will happily take your questions in the Q&A session after the presentation.

Without further ado, Tiina, over to you, please.

[Tiina Tuomela, executive]

Thank you very much, [ Adam ]. Good morning, everyone, also from my side, a warm welcome. In a volatile market environment, flexibility is key, also when it comes to conference calls. Therefore, thank you all for dialing in today on short notice.

In yesterday's evening's ad hoc release, we have announced that the operating result for the first quarter will come in significantly negative. This differs clearly not only from Uniper's historical seasonality pattern but also from what we have communicated in the last analyst call in terms of Q1 expectations. However, at the same time, we are confirming our full year outlook for fiscal year 2022. We can imagine that yesterday's announcement might have led you quite puzzled. Therefore, we felt that we need to follow up this conference call right away to provide as much transparency as possible.

Overall, adjusted group EBIT in the first quarter according to preliminary calculation amounts to roughly minus EUR 830 million. I would like to make this very clear at the start: The main reason for negative results is an earnings shift in the latter quarters of 2022 stemming from our gas midstream business. Essentially it is the outcome of conscious optimization decisions that enabled us to seize market opportunities and to capture additional value while supporting the security of supply balance in Germany going forward. I will go into more detail on this topic as well as on the other earnings drivers in a minute.

When it comes to Russian's war on Ukraine, we see currently a limited impact on our operational results. As of today, the flow from Russian gas under our existing long-term contracts remain unaffected. We are in ongoing discussion with Gazprom regarding the implementation of the Russian ruble decree, taking into consideration also the recent statements of the EU Commission on the sanction [ aspect ]. Our view is that a payment is still permissible. It is essential for us to act in accordance with Russian's law, and we are in close contact with the German government on this matter. The first payment affected by the decree will be due at the end of May.

When it comes to coal procurement for our power plants, we had already started to diversify our supply sources before the EU ban on Russian coal. The higher costs associated with changing our coal supply for our European generation as well as negative effects in our Russian generation division are the main negative impacts from the Russian crises on our adjusted EBIT, so far.

Looking at the next quarters of 2022, we see a back swing of the mentioned gas earnings shift and a business where the limited operational impact from Russian crises is clearly overcompensated by strong-performing flexible assets in a, so far, volatile market. Therefore, we overall confirm the full year outlook that we gave in February despite the unusual earnings contribution in Q1. For adjusted EBIT, we continue to guide a range between EUR 1 billion and EUR 1.3 billion. When it comes to adjusted net income, the outlook range remains at EUR 800 million to EUR 1 billion. However, we are not recording any interest income from Nord Stream 2 anymore. With about EUR 100 million or less interest income, we expect to rather end up in the lower half of this guidance range for adjusted net income.

Looking at the further preliminary financial metrics in Q1, we will most likely see an unadjusted net income around minus EUR 3 billion. Aside from the operational performance, it will reflect significant impairment losses. Aside from the already earlier announced EUR 1 billion impairment on Nord Stream 2, we expect a mid- to high "3 digit million euro" impairment on the value of our Russian generation business in Unipro. This is especially resulting from significantly increased cost of capital in the short to mid term, which have to be applied under IFRS. The [ corporate ] amount here is subject to the outcome of the still ongoing impairment tests for Q1.

Both operating cash flow as well as economic net debt are following the trends we see in operating profit. Additionally, both metrics are impacted by the backswing of measures that were taken at the end of 2021 in light of the liquidity situation back then. Optimizing liquidity and securing financial headroom remains one of our top priorities in 2022. Uniper's S&P credit rating has remained at BBB flat. However, the current risk relating to a potential gas curtailment with corresponding impact on Uniper's gas business as well as commodity prices and margining requirements resulted in a CreditWatch negative. In recent weeks, we have continued to work on decreasing our margining requirements and hence [indiscernible], further increasing our liquidity headroom.

The net cash margining requirements have been significantly reduced from about EUR 7 billion by the end of 2021 to now roughly EUR 4.5 billion by the end of March 2022. This is the result of active margining optimization supported by the seasonal roll-off margining position as a large amount of hedges went into the settlement during Q1. At the end of March, we were also able to extend the governmental KfW EUR 2 billion credit line until April 2023. In this context, it is further helpful that the German government has recently announced a variety of financial support options for energy companies affected by the war to increase their resilience towards the extreme market movement. This clearly underlines persistent relevance of companies like Uniper in the current environment.

Moving to the next slide with the most important drivers for the operating earnings development in Q1. On -- year-on-year swing in adjusted EBIT amounts to more than EUR 1.5 billion at this stage. This is due to the fact that both Q1 2022 as well as prior year's Q1 showed truly remarkable results but each with different [ signs ]. Last year's adjusted EBIT amounted more than EUR 700 million, while this year's adjusted EBIT will come in at a negative of roughly EUR 830 million. Let's go through the main year-on-year drivers, with the largest one at the end, so we can focus the further discussions there.

The first step in the waterfalls is the lower contribution from our outright business of roughly EUR 100 million due to lower achieved prices [indiscernible] to the lower EPADs, so-called electricity price area differentials. As you know, the Nordic electricity system is divided into different pricing [ zones ]. The supply and demand situation in each of those [ zones ] lead to different power prices which are reflected in the EPAD, which are differentials to the overall Nordic system price. A large part of Uniper's Nordic outright portfolio, the Swedish hydro asset, is located in the SE2 Sundsvall price area. Due to [ street ] congestion issues, this pricing [ zone ] is currently facing a [ significant flow overhang ], which result in a pricing differential of even more than minus EUR 25 per megawatt hour compared to the overall Nordic system price. Due to the liquidity constraints, the EPAD exposures cannot be effectively hedged in advance. Accordingly, the effects from the EPAD materialize closely -- close to or at delivery. When it comes to Q1, this was the main driver for the lower outright earnings year-on-year. Additionally, Uniper experienced an unplanned outage [ over ] 9 days at our nuclear power plant Oskarshamn in February.

The next element, the carbon phasing effect, is probably well known to you and will as usual fully reverse in Q4, [ in brief ]. As CO2 prices increase, so do our CO2 provision during the year. Those expenditures will be offset from gains on our carbon hedges once the hedges deals settle in Q4. The current impact from carbon phasing for the first quarter is around minus EUR 200 million higher than last year, being approximately EUR 250 million in absolute terms.

The third block summarizes the development in the European fossil generation business. In total, we see around EUR 100 million of lower earnings here, which are spread across in a number of small effects, with the most prominent being, as expected for 2022, lower income from U.K. capacity market auctions; also as expected for 2022, regulatory restriction caused by the Urgenda decision in the Netherlands effectively capping the utilization of our Maasvlakte 3 power plant at 35%. During the storm Eunice in February, however, also [ one stock ] at our Grain power station collapsed. Fortunately, no person got injured, and the financial effect is limited.

As already mentioned, in order to reduce our exposure to Russian coal, we have to revert to alternative sources of supply with higher costs and lower coal quality. In terms of operation, we saw lower spark spread and therefore lower earnings, especially from our CCGT plants in Germany, due to the high gas prices. On the positive side, higher clean dark spreads in Germany and U.K. increased Uniper's generation and therefore had a positive effect.

Coming now to the largest driver. The adjusted EBIT in our gas and international commodity business came down by roughly EUR 1.2 billion, which can be split into the 3 main drivers. First, as we had explained in the full year call 2021, some of the liquidity measures taken in Q4 of last year resulted in a earnings swing. i.e., margin that could have otherwise materialized in Q1 had already been anticipated in Q4. The net effect across gas midstream and international commodities amounts to roughly minus EUR 200 million. Second, the last year's Q1 was positively impacted by an extraordinary contribution from our LNG and U.S. gas and power activities which were benefiting from extreme market developments in Asia and the U.S. last winter. The lapse of those extraordinary result amounts to around minus EUR 250 million. Finally, the most significant effect, which is basically the reason for today's update call: Around EUR 750 million of earnings have been shifted on the basis of our optimization decision on the back of our gas [ storages ]. Some of the most significant optimization measures were made in March and as such were not reflected in the earnings indication for Q1 that I gave in the February call. Let me explain to you the background and rationale of those decisions and the corresponding earnings shift on the next slide.

As you know, Uniper is actively optimizing its flexible gas assets. This means that, depending on the market situation, [ we turn position ]. i.e., we [ vacantly ] buy and sell position to capture market opportunities. This is ordinary business for our asset optimization. [ Given the currently ] high market prices, relatively small changes in the positions can have quite large impacts on the earnings distribution over time. Accordingly, every day, optimization decision within the portfolio on how we run our assets can have quite a big impact on how earnings are distributed over time. This is what we saw in Q1 of 2022. Over March, gas prices came significantly down. Driving -- by warm weather, the gas forward curve came down even stronger in the front. This led to a situation in which the gas spot price for deliveries in March was lower than for the [ summer of ] Q2 and Q3 delivery periods. The differential grew up to EUR 5 per megawatt hour, as illustrated here.

In order to benefit from this market [ constellation ], Uniper changed its gas storage withdrawal strategy. About 13 terawatt hours of gas [indiscernible] priorly assumed to be withdrawn and that have been already hedged in the market will get in storage. We were not alone, by the way. Storage withdrawals were quite [ low ] across the whole industry in the Northern Western Europe. By reducing the withdrawal, we could unwind the hedges in March by buying back around 13 terawatt hours and reselling those volumes in future periods. This enabled us to effectively capture the spread between spot and forward [ barriers ] in the gas market.

Based on the magnitude of the spread and the volumes, we were able to lock-in a higher double-digit number of earnings for future quarters, which is ultimately supporting the fact that we can confirm our full year guidance. However, this also resulted a big earnings swing, as those 13 terawatt hours of gas were heavily in the money due to the market price being significantly above the inventory balance sheet value. By shifting the volume, we had to [ forgo ] EUR 750 million in Q1 in order to lock-in even higher earnings in future quarters. As those deals have been re-hedged, the margin is already locked in; and the corresponding earnings will revert in 2022. Aside from the commercial impact, the lower withdrawal enabled us to keep more gas in reserve going forward, which puts us in a better position when it comes to potential market disruptions going forward.

Moving over to the last slide today that summarized the main messages around our full year guidance. As illustrated on the left side, based on the current Q1 and our full year outlook, we expect the remaining 3 quarters of 2022 to accumulate roughly EUR 2 billion of adjusted EBIT. While this number might seem very high, please note that about EUR 1 billion were already resulting from backswings related to [ gas shifts ] and the carbon phasing effect. This leaves us then with roughly EUR 1 billion of underlying earnings that need to be earned over the next 9 months in order to meet the full year range.

Looking at the current forecast, we see once again that Uniper's flexible portfolio is well performing in the current market environment. Among others, we see strong value materialization in the gas midstream business; Uniper's European generation business benefiting from the higher clean dark spreads, with higher utilization especially in the U.K.; favorable market conditions supporting our hydro business, especially in Germany, and as already mentioned, assuming that the operational impacts from the Russian war remains limited.

This brings me to the end of my presentation today. I hope I was able to provide you some clarity about our recent financial developments. Niek and I, we are ready to take your questions now.

[Unknown Executive]

Thank you very much, Tiina.

We will open the Q&A session now. [Operator Instructions] Operator, please go ahead, and we are ready now.

[Operator]

[Operator Instructions] So let's go ahead and start the Q&A session now. So the first question of the day, we have from Alberto Gandolfi [ from Goldman Sachs ].

[Alberto Gandolfi, analyst]

Hopefully, you can hear me. It's Alberto Gandolfi, Goldman Sachs. Quite a lot going on today, so apologies if I don't sound overly linear in the way I structure the questions, but the first one is the following. We are seeing that gas supplies to Poland are being cut off today, and Bulgaria, so I guess the question here is the following. How does this, if at all, impact you? Do you think there's alternative routes if gas through Yamal pipeline may not be flowing? And related to this question still, are you going to "comply" and essentially have payment for Russian gas, exit your bank account in rubles? So you're going to settle payment in rubles. Or are you going to refuse, the way we have seen Denmark or Poland behaving? I guess, if the answer is yes, then probably I may have a follow-up, but I'll stop there for the first one.

The second question is on margin calls. Can you shed some light here, please, on -- and you mentioned a EUR 4.5 billion, but just I want to be 100% clear, please. How much are the "margin calls you are out for" at the moment? And any risk to financial derivatives on your balance sheet or on these margin calls, let's say, for every 10%, 20% increase in gas prices? So I'm trying to understand. Is there going to be liquidity solvency question mark here from a credit perspective if there is suddenly another spike in gas prices? And how do you plan to deal with it?

[Tiina Tuomela, executive]

Alberto, thank you for the questions. So maybe we'll start with the latest news about the supply to Poland and if, Niek, you could elaborate our view.

[Niek Hollander, executive]

Yes, sure, happy to do so. It's not a topic of today, but then again it's a topic of today given it's a very recent development, so I understand the question. So you will understand that we obviously don't have full insight. We've also seen in the press, I guess, what you've seen in the press. And based on that, I would say the following. Specifically for Poland, how we interpret the situation is that the national oil and gas company is no longer offtaking from Gazprom because of the dispute around the ruble payment. Now we don't exactly know what has happened, so I will not speculate on that part, what it could mean in case there will be no deliveries to the national oil and gas company in Poland anymore, PGNiG as we call them. That -- until roughly 7 bcm is our estimate for the remainder of the year that will not be supplied to that specific counterpart. Now you have to realize that is a deal between this counterpart and Gazprom, so it will not have an impact on the transit of volumes through Poland, so anyone who's offtaking, for instance, in Germany could theoretically still continue to use that route through the Yamal pipeline. And as per our observations, including as of this morning, we do not see significant changes in volumes via that route. I mean volumes have been relatively low via that route, but that is basically because the transport route to the Ukraine as well as Nord Stream 2 -- Nord Stream 1, sorry, has been fully utilized. So flows have been relatively low for the Polish route, so to say.

As for Bulgaria, we think it's a similar situation [ but ] also dispute around payment in rubles, volume affected probably in the order of magnitude of 2 to 3 bcm. If you put it all together in terms of impact on the market -- and first of all, Poland obviously has quite significant LNG [ import ] facilities. They have been actively buying in the market over the last couple of months, so it appears to me that they have secured quite some volume, specifically from the U.S., so they can probably easily replace the missing 7 bcm as per our estimates. So looking at the overall impact on supply-demand and across Europe, we think this shouldn't have a material impact altogether. Having said that, I do look at the screen right now and see that the market has opened up roughly EUR 15 to EUR 20, as always on the back of relatively small trading volumes the first hour. So the market is at least initially interpreting this as a somewhat bullish signal, which I guess can be explained by the nervousness we still see in the market.

[Tiina Tuomela, executive]

Thank you, Niek. Continuing with the ruble payments: So we consider that the amendment of the payment process complies with the sanctions laws and so the payments are possible. We -- of course, we continue the dialogue with the German government to be fully aligned. And also we -- our understanding that this is underpinned with the EU Commission's assessment, so no change in -- as of there. Maybe to mention also that, when it comes to the next payment under this new decree -- so it will happen at the end of May.

Then when it comes to the margining. So our net margining receivables were, at the end of 2021, around EUR 7 billion. And they have come down to EUR 4.5 billion. And what we have done in the meantime: So we have reduced our exposures. And also our hedges have rolled off, so we would say that our gas position in respect of margining is pretty flat. So in that sense, the price movements in the gas shouldn't, yes, increase our liquidity need in the similar kind of amounts what we saw before Christmas. At the same time, as we did before Christmas, so -- we have done the precautionary measures to increase our liquidity buffers. So in that sense, the situation is much more stable.

[Operator]

Next, we have Vincent Ayral from JPMorgan.

[Vincent Ayral, analyst]

Yes. And I will ask just 2 questions. So the first one is again regarding the ruble payments. So our understanding at this stage is basically the European utilities go and pay their contract in euros to Gazprombank, which [ stalls ] the FX change in ruble before their contract settlements. And therefore, the conditions work for both sides. The question remains on when is the payment considered done because, once you pay Gazprombank and after, you depend upon Gazprombank doing the exchange, so how does that work exactly? What are the points that still need clarification? And what are the risks around that? So that's ruble payment. That's question number one.

The question number two is I -- why do we have a prerelease [ today ]? I understand that, yes, the profitability shift from Q1 to the rest of the quarters, but you have guidance for full year. Yes, there is a high level of volatility in quarterly seasonality of the profitability, [ but so was the case ] always with Uniper given your carbon -- your CO2 reporting, which makes it extremely difficult for us to get like a real underlying on the intra-year. So what was the exact reason to do this prerelease when, at the end of the day, your full year guidance isn't changed? Yes, you have some impairments done, but they were widely expected, so could you explain to us this? It was a bit of a surprise, I would say, when after -- once you open the e-mail, there is no surprise in sight.

[Tiina Tuomela, executive]

So coming back to the ruble payments. So the mechanism currently, what is, in a way, under construction, is that the payment from our end happens in euros. And then they are changed with the FX, exchange rate to the ruble at the Gazprombank side. So technically the payment [ obligation is forfeit ] when our euro amounts are going to the Gazprombank. Of course, [ a round of stuff in details ]. We need to, in a way, look at the [ premises ] and paperwork and so forth. So in that sense, more clarification and confirmation, of course, we are seeking from our legal assessment but also when it comes to the discussion with the German government.

Then when it comes to the profit, in a way, shift. So quite frankly so, this is our kind of normal optimization work. And I will say that our overall optimization is not done on quarterly basis. So gas optimization is more on the yearly or [ over than a yearly ] basis, so the quarter movements are quite natural. However, our regulator [ BaFin and the ] demand regulation expects us -- that if there are unpredictable changes or, in a way, bigger changes compared to our previous year earnings or our earnings what we have guided before -- so [ we'll need to ] come out. And therefore, we thought to be on the safe side, so we wanted to give this pre information to the external market before our official publication of our full accounts next week.

[Vincent Ayral, analyst]

On the ruble payment, if I may, just to follow up. I mean we see that everybody does not seem to basically be looking at it the same as you do. We understand that the largest utilities, largest peers in the Western Europe, Germany, France and others seem to be on the same page as you, but it matters for you probably to understand what the others will do. [ Or they're ] basically dealing with it exactly the same way. Do you have any information on that? Do you see there is any risk of disruption from the -- other large buyers of Russian gas in Europe?

[Tiina Tuomela, executive]

Well, naturally we have the dialogue with Gazprom and, of course, the other players in the market -- and especially very, very important, aligned the German approach. So -- [ but as today ]. So of course, we can't clearly see that -- what kind of letters and communications the other countries, other companies have, but in -- that, we need to ask from them and can't comment on their behalf, but naturally the communication is important.

[Vincent Ayral, analyst]

So the last -- the conclusion there is that it's not coordinated at the European level.

[Tiina Tuomela, executive]

Excuse me...

[Vincent Ayral, analyst]

So the conclusion is that it's not coordinated at the European level. Every country can deal with it differently, as we can see this morning.

[Niek Hollander, executive]

Yes, I can comment on that. I think that is the right assessment. We are in very close alignment obviously with our national government or with the German government. As you can imagine, we cannot comment on what competitors think or how they analyze the situation, but I think your assessment that what we're saying is broadly in line with how the others see it is probably something I would also support. And of course, the coordination is equally happening on an EU level, right, but I think our primary discussions are, for the time being, with the German government, where we're seeking an aligned position. And obviously Germany is doing that, if you will, on our behalf within the EU as well. [ So that ], their coordination is happening at all levels, but you're right. There are currently different, I think, views on what exactly the implications are and whether it does or does not breach sanction laws. So that discussion will have to continue.

[Vincent Ayral, analyst]

Okay. Sorry for drilling a bit further on this topic. [indiscernible].

[Operator]

Next, we have John Musk from Royal Bank of Canada.

[John Musk, analyst]

Can we just -- I know you went through it in some detail on the math behind the moving parts in gas storage, but I just wanted to go over that again. I missed some of it, sorry, joining the call late, but if we're shifting EUR 750 million essentially out of Q1, into later quarters, yes, and if I look at the forward curve, the gas at around about EUR 100 per megawatt, obviously very volatile, yes, how do I reconcile that EUR 750 million with 13 terawatts and the EUR 100 which would give me a bigger number? I assume there's a cost of what you bought the gas [ at that I maybe ] need to account for. And then secondly, on your Russian business Unipro, is there any update to your thinking with that business and potential plans to exit?

[Tiina Tuomela, executive]

So coming back to the gas storage movement. So I think our main message is that -- how we do the optimization, so the spread is relevant. So basically what we saw, that the spot forward spread was EUR 5 better for the following quarters. And therefore, we shifted the 13 terawatt hours to get the gain in the future period. So of course then, in the first quarter, buying back the hedges in -- causes the negative impacts. And then when we take the -- from the storages where the book value is clearly lower -- so we will realize the gain, but as we see, if we look at the full year impact, which is important -- so it is the spread and additional margin what we have gained.

Then when it comes to the Unipro. So basically what we announced earlier this year, that we have started a strategic review. And the divestment process is continuously reviewed. And we will resume as soon as it is possible, but clearly understandable that the timing currently is a -- challenging. When it comes to the Unipro operation: So operations are continuing steadily, and production volumes and also prices, [ in that end ]. And we'll continue to exercise the control of the -- of course, the company, and therefore we'll consolidate and show the numbers in our quarterly report.

[Operator]

Next is Sam Arie from UBS.

[Samuel Arie, analyst]

Lots of useful info today. I think just 2 from my side. One is a follow-up on what John was just asking now on Unipro, but can you comment -- I mean I suppose the question is what's your understanding of what's possible within the sanctions, but are you expecting to be able to receive dividends from Unipro? Or if you were able to sell assets at some point, is it your view that you would be able to bring proceeds out of Russia? And then -- and sort of related to your comment just now about continuing to consolidate the earnings, can you just comment on what will be the scenario in which you might not report Unipro earnings anymore? I suppose the Street have taken Unipro out of the valuation. And where I'm going is whether at some point we have to think about taking the Unipro earnings out of EPS as well. So that's my first one.

And then second one, if you don't mind, is one of these kind of wider questions but just really interested in your comments. But obviously a big part of the debate is whether Europe and Germany should move faster to stop buying Russian gas at all. It feels to us that the [ central case ] for now and the German position is not to do -- not to make an overnight stop but just to keep reducing gas purchases as fast as possible, but I'm interested if you see any risks to that as a central case. I mean, any chance of Germany doing something more abrupt, based on conversations you've been having? And anyway, even if we stay on this path of reducing Russian gas purchases as fast as possible, what happens if Europe's plans take demand for Russian gas below what you've already contracted? I think you have contracts out to the end of the decade. Would that leave you [ with ] kind of a commitment to buy gas that Europe is not wanting you to buy? We just don't kind of understand how that part would work, so we'd love to hear any comments you can share on that.

[Tiina Tuomela, executive]

Thank you, Sam. So starting with the question about Unipro, so -- and the dividend. So at the moment, probably, the May dividend payment, we are not counting that due to the current situation and the sanction situations, but overall I think we are assessing that we are able to extract the value from Uniper one way or another and currently temporarily impaired in this cross-border challenges, but in -- main thing is that the company is producing. Customers are paying. And operations, in a way, continue. And then we will assess and review the overall situation when the timing is better. Unipro will have the whole of Q1 results on Friday, so then we will hear more about the performance. And maybe, to the gas wider questions -- so maybe I hand over that to Niek.

[Niek Hollander, executive]

Yes, sure. I think your question was around whether we see a scenario where Germany will abruptly and all of a sudden quickly step away from Russian gas. In all honesty, we don't see that at all. We rather see the opposite, which is that the government, the federal government, is doing its utmost to secure the supply of gas specifically into Germany. And I think this is, amongst others, evidenced by a couple of recent examples. They stepped into -- in their capacity as trustee, into GAZPROM Germania. They have announced further liquidity support measures for the industry a couple of weeks ago. And you probably also have noticed that the energy security law, which is the English translation of the German term, is being drafted. And that's -- it's still in draft status, but it also foresees actually a couple of measures that from our point of view rather point into the opposite. So the government will do its utmost in order to make sure that this market is safeguarded and also that the risk of curtailment is extremely low. And so consequently, we don't see that scenario at all, an abrupt change. And then in a next step, I think you followed up with a question around the way forward.

I think the -- and we obviously see in the news that some countries are announcing ambitions or strategic goals. [ The years ] differ. And they change continuously, but for the time being, they are nothing but ambitions, so I think we really have to wait and see until that is being transposed into real law, into regulation. Obviously we're following that very closely, but I think it's difficult to speculate when that may happen and how that will happen. So I think, until then, it's very difficult for us to give a firm position on that. What we're obviously doing simultaneously is looking into our own diversification strategy. So looking at sourcing gas through LNG predominantly from other parts of the world. So that is something we're actively looking into right now. And that's obviously one of the strategies for us to diversify our own supply mix, if you will.

[Samuel Arie, analyst]

Okay, very helpful on both points.

[Operator]

Next, we have Deepa Venkateswaran from Bernstein.

[Deepa Venkateswaran, analyst]

I'm going to continue on the gas-related questions. So I just wanted to clarify with you. Of your long-term contracts with Gazprom, how much have you back-to-back already hedged through derivatives at this point? So out of the 200 terawatt hours, how much of that, if there's a disruption at least in the first order, you could get caught up in the event that you've already forward sold it to other customers? So if you can quantify that. And secondly, can I just check how much of the shareholders loan or guarantees from Fortum you have withdrawn till now?

[Tiina Tuomela, executive]

So when it comes to our [ LTCs ]. So basically we don't have the outright position, so basically we synchronize our supply and sales [ leg ], so in that sense are fairly well balanced going forward. Then when it comes to our shareholder support, so at the end of the Q1: So we have drawn the loan by EUR 4 billion, and then EUR 2.5 billion in guarantees. So a total of EUR 6.5 billion out of the total facility of EUR 8 billion.

[Deepa Venkateswaran, analyst]

Sorry. Can I just clarify? When you're saying you're not doing outright, I do understand that you have [ back ] contracts, but in a hypothetical situation that if there are -- there's a stoppage of supply contracts, clearly not all your 200 terawatt hours would be exposed, so I was just wondering whether -- is it mostly on a monthly basis, quarterly basis? So what proportion of that is immediately at risk because you have forward sold? Or is it the entire 200 terawatt hours?

[Niek Hollander, executive]

Yes, I think the way you can best look at our portfolio is that the volumes gradually are [ trucked in ]. And we sell forward to our customers, which we typically do a year out; and to a somewhat lesser extent, 2 years out; and to a somewhat lower extent again, 3 years out. Because that's a typical B2B contracting type of pattern. So I think that's the best way, to look at our exposure in that respect, yes. And we try to almost back to back, i.e., neutralize, the risk as much as possible in terms of the volumes that we gradually receive from Gazprom and that we sell forward to our customers. So we try to balance that as much as possible, and we're typically quite successful in that respect. So the main volumes are typically in the current year and year ahead. And you know our sales volumes [ probably ]. And then that is ramping down the year thereafter and another significant step the year afterwards simply because that is the typical B2B sourcing pattern that most of the industrial clients in Germany follow. And that is matching quite well with our volumes.

[Operator]

We have James Brand from Deutsche Bank.

[James Brand, analyst]

I'm going to buck the trend a little bit and ask a [ slightly different-track ] question on SE2 and the issues that you're having there; I guess, 3 parts about it, if you'd allow it, because it's kind of one question. Firstly, how much, what proportion of your volumes in the Nordics are in SE2? Secondly, do you see any resolution to the pressures there? Is this a temporary thing or -- that's going to get any better anytime soon? Or it's just going to be a very difficult market there for a long period of time. And thirdly, when you have negative prices there, how easy is it for you to curtail your production? Or you just start accepting the negative prices.

[Tiina Tuomela, executive]

So basically, in our SE2 price area, we have our hydro production. And when it comes to the volumes in Q1: So there were around 2.4 terawatt hours and on the yearly basis 8 terawatt hours. And I think that, of course, the situation what we have experienced is the -- related to [ street ] congestions. And of course, it will depend of your hydro balance situation, how much there is wind, with the industrial, in a way, demand and now the timing for Q1. So prices went, I would say, abnormally a big swing compared to the system price. I think there are continuous dialogues with [ Svenska kraftnät ], the network company, to in a way stabilize and in a way get more capacity, but as we can see, it's not a quick fix, so -- but the balances are moving. And we see that more capacity is in the northern areas of the -- Sweden. Niek might want to add...

[Niek Hollander, executive]

Yes, I just wanted to add one thing. I'm not sure if I got the question correctly, but we're not talking about negative prices but about negative EPADs prices, all right? So the Nordic region has a system price which is basically the -- say, the arithmetic average of the price areas. There are several ones in Norway, several ones in Sweden and Finland, so the system price is the average. And then there's contract for differences or EPADs, which are basically giving you the delta versus system price, some of them positive, some of them negative. And in the Swedish price area, where we have most of our hydro production, they are -- that is typically trading somewhat below system price, but as of recently, it has been delivering very negatively. So the system price plus EPAD price is what matters at the end of the day, but the EPAD price has been very negative. So the delta versus system price has been very big.

And now the problem that we're facing is that there is hardly any liquidity in that specific EPAD product, so we can trade system price. So we can hedge our exposure by selling system price, but as you will understand from what I just explained, they're just a proxy for SE2. And if you cannot really hedge the EPAD, which is increasingly difficult because of low liquidity, you are obviously exposed to that EPAD. So that price differential in delivery, and that is what we're talking about here. That's what has impacted our results to some extent over Q1.

[James Brand, analyst]

That's very helpful.

[Operator]

[indiscernible] question of the day, from [ Lue Schumacher ] from Societe Generale.

[Lueder Schumacher, analyst]

Yes. It's Lueder here from SocGen. Just a few follow-up questions on my side. On the variation margin, if I understood you right, you said the requirement has come down from EUR 7 billion to EUR 4.5 billion; and I just wonder. How can this be when you're not withdrawing gas from storage? My understanding was that a lot of your variation margin requirement or outflows were linked to volumes that are in gas storage, so if you could shed a bit more light on that, that will be great. The second one is on Unipro. I mean you're still the legal owner. Could you theoretically use Unipro cash flows to make ruble payments for the gas that you're procuring from Russia? Is that a possibility? Is that legally even possible? I don't know, but it will be interesting to get your view on this.

And the last one is on something that Niek just said. He said that the energy security law is being drafted. My understanding is that it was drafted in 1975, so what is -- well, what is being drafted? What is being looked at?

[Niek Hollander, executive]

Yes. I can start with that last question. And thanks for correcting me. I should have said redrafted, probably, because there is indeed an existing law that's currently being redrafted. I think it's -- given that it is from a couple of decades ago, I think it's basically made for -- fit for purpose for the current situation, all right? That's probably how I will phase it. Does that answer your question?

[Lueder Schumacher, analyst]

Yes, but it will be great if you could elaborate a bit. So basically, if -- the law is currently being made fit the current situation. Is that a legal process that is underway to, well, prepare for a complete stop of Russian gas volumes or bigger curtailment?

[Niek Hollander, executive]

No. It's rather about how the market will be controlled, operated in case of emergency situation; and what can be done in order to safeguard security of supply. I mean it's in draft status. I've understood it will only be passed, come into effect, yes, at the end of May. So we don't know all of the details yet, but that is on a high level what it's foreseeing.

[Lueder Schumacher, analyst]

Okay, that's very interesting.

[Niek Hollander, executive]

I think the original draft of the legislation back then was rather focusing on regional issues and, I think, also with a focus on other commodities or market and then specifically gas, so that's why I would call it a redraft of the law. Then I would also take your first question, and then I think Tiina will take the other one. So on the variation margin: Variation margin is essentially out of the moneyness of hedges, all right, but it's across the curve. So we obviously have exposures and, well, from today until a couple of years out. And specifically when we're talking about withdrawing gas, we're obviously talking about the current quarter, right? So the -- there is also an M2M [ for the ] part of the curve that we don't talk about in case we're speaking about a specific impact that the adjustment of the storage optimization has had on our Q1 earnings. That would be my first comment. And then secondly, I mean, whether we withdraw or don't withdraw doesn't have so much of an impact on the M2M of the hedges, obviously, because that is ultimately determined by market prices. It has an impact on our risk position but not so much on the variation margin. So I hope that clarifies. Tiina?

[Tiina Tuomela, executive]

[ Very good, Niek ]. So then coming back to the Unipro, so basically the question of how we could extract the value. So we believe that there is a value. And of course, we'll look at the potential. We have the ruble cash flows there. So all the alternatives are, of course, available how we try to keep and maximize the value from -- on that segment.

[Lueder Schumacher, analyst]

The question wasn't really how you extract value. It was more on the possibility of using Unipro cash flows to make ruble payments for the gas that you're importing. Is that a possibility?

[Tiina Tuomela, executive]

Currently, I think, we are [ steeling ] the Unipro business. [ There's the ] Unipro business, and then our [ LTCs ] and the payment term and so -- as a separate dialogue. So currently that's not in our plans.

[Unknown Executive]

So sorry to interrupt but being conscious of time. Obviously there are a lot of questions, that we fully understand. However, we need to end this call now. For any further questions, please contact our IR team. We'll try to help as much as possible. Aside from that, thank you very much to everyone.

[Niek Hollander, executive]

Thank you.

[Tiina Tuomela, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now. Thank you so much.