Will Malta face a spike in the price of gas?

Blog post by Marica Micallef

U.S.A. already saw less gas production last year as a result of the coronavirus-driven recession.

The question that follows is: Will Europe go through a gas supply crisis and a gas price hike, especially with the latest war between Russia and Ukraine? According to APnews, “Europe is short of natural gas — dangerously short. A cold winter could mean a severe crunch, and utility bills are headed higher, burdening ordinary people and weighing on the economic recovery from the coronavirus pandemic.”[1] The same media states that although Putin has promised to help fill European gas storages as energy prices soar, supply shortages and political tensions continued to rattle energy markets, keeping prices high. This has created a ripple effect on pinched businesses, forcing them to raise prices, which in turn affects customers who are already facing higher bills at home.

CNBC confirms the gas price hikes, with the “international benchmark Brent crude futures surpassed $100 a barrel for the first time since 2014.”[2] Analysts at political risk consultancy Eurasia Group stated that “the blizzard of new restrictions will force many traders to be exceedingly cautious in handling Russian barrels” and that there will be a disruption in Gas transiting via Ukraine, affecting supplies to several central and eastern European countries, and raising gas prices in Europe.”

The squeezed British households will be braced for further gas price rises in the coming months after Putin invaded Ukraine. “Unlike other European countries, the UK only depends on Russia for a very small proportion of its gas supply. But consumers would almost certainly be hit with higher energy bills if Russia responds to European sanctions by cutting off gas supplies to the continent, driving wholesale energy prices even higher than they already are.”[3] This means that the Russian/Ukraine crisis could see gas supply ramifications for the world.[4]

Russia is the largest supplier of natural liquefied gas to Europe, whereby it sends an estimated 230m cubic metres of gas to Europe by ship every day, of which around a third travels west via Ukraine. So, what if Russia turns off the gas?

According to The Guardian[5], there is no need to panic because this might be better than we think. It states that the focus can turn on Qatar, which is one of the world’s biggest producers of gas and the second-largest exporter of liquified natural gas (LNG) behind Australia. Qatar has been supplying LNG to the UK and other European countries for years, shipped via tankers. Libya and the US might also play a role. “A record number of LNG cargoes left the US destined for European ports in December 2021 with the US having a strong long-term incentive to encourage Europe to give up its reliance on Russia and the Nord Stream 2 pipeline project, in favour of its own shale gas reserves. How come did the US already ship gas in December, two months before the war started? Did they know already what is coming? And could LNG help boost the energy supply?

With global gas shortage helping in the lifting up of prices in the U.S[6], UK, and Europe in more than a decade, and with these worries over gas inventories and tensions over Ukraine, will Malta also witness a gas shortage supply or have to buy gas at a higher price? Will all this stoke a rise in the gas prices locally? The hedging agreement with ElectroGas expires next April. It will be followed by a new hedging agreement which the media told us, that the new one will still have favour terms for Malta. But do these favour terms hold in case of big and extraordinary international crises? The new hedging agreement might offer some favourable terms to the government but it still the purchase of gas has to be worked out on the current gas prices. Is there some small print note in the original contract which would allow ElectroGas to demand higher prices than those previously envisaged in case of an international crisis?

With the Italian households seeing electricity prices jumping to 55% in the first quarter of this year and gas prices rising 41.8% due to higher commodity prices[7], and with the expiry of our government’s hedging contract with ElectroGas immediately after the election[8], can our government confirm if the Maltese will see a rise in gas and fuel prices as from April, instead of keeping the Maltese folk more hypnotized than it already is?

[1] https://apnews.com/article/coronavirus-pandemic-business-health-vladimir-putin-europe-69e305bf532f4b77db5ba8fe8a7173b6

[2] https://www.cnbc.com/2022/02/24/russia-ukraine-crisis-could-see-gas-supply-ramifications-for-the-world.html

[3] https://inews.co.uk/news/consumer/gas-prices-uk-rise-will-russia-sanctions-germany-nord-stream-2-energy-bills-explained-1478117

[4] https://edition.cnn.com/2021/10/11/business/gas-prices-oil-opec/index.html

[5] https://www.theguardian.com/business/2022/jan/27/energy-crisis-where-could-europes-gas-come-from-if-russia-cuts-exports

[6] https://www.reuters.com/business/energy/global-gas-shortage-helps-lift-prices-united-states-kemp-2021-10-19/

[7] https://www.reuters.com/business/energy/italy-retail-power-bills-rise-55-next-quarter-regulator-2021-12-30/

[8] https://simonmercieca.com/2022/02/23/ezatt-wara-l-elezzjoni-jiskadi-l-kuntratt-tal-hedging-mal-electrogas-bhekk-il-hajja-mistennija-terga-tghola/

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