As Europe is gripped by perfect storm of rising gas prices, Malta holds out

Energy minister Miriam Dalli has credited Malta’s mix of energy sources as a key factor in keeping prices steady as Europe is gripped by a record-breaking increase in gas prices.

A global energy crunch is sending natural gas prices soaring in the U.K., Europe and Asia, hitting record highs.

Analysts at Deutsche Bank noted that in Europe prices are up fivefold, while in the U.S. and Asia prices are about 1.5 times higher. In Europe, the price spike in natural gas is equivalent to if oil were trading around $200 per barrel.

“Over the past months, natural gas prices around the world have risen sharply, mainly driven by increased energy demand in a post-pandemic economic recovery and tighter supply conditions. European gas reserves are at a record low, further impacted by extreme weather conditions in winter and summer. Adding to this are also wind turbines which did not produce as much energy as they would have normally done,” Dalli told MaltaToday.

“Thanks to the different investments the government has done to diversify its sources, Malta and Gozo have a mix of local generation, interconnector and renewable energy sources that can help us control and protect consumers as much as possible.

“Had this government opted for just one source of electricity, as the Opposition keeps on insisting – today we would not be able to offer households and businesses stable tariffs,” the minister said.

The Opposition’s spokesperson on energy, Ryan Callus, thinks otherwise. “The PN also believes in a mix of energy sources, among them the interconnector pioneered by previous Nationalist administrations, and solar energy sources... but the minister does not talk about our mandatory gas purchases from Electrogas, the theft of €10 million on the Montenegro wind farm, the €40 million waiver on taxes owed by Electrogas, the ‘theft’ on energy billing, or the €14 million in losses from the SOCAR hedging agreement. The minister wants to be negative but the PN will be proactive on energy and offer its solutions.”

Malta has a fixed-price agreement with gas plant owners and gas suppliers Electrogas, whose partners include the Azerbaijani state-owned SOCAR Trading. The deal was criticised politically at a time when gas prices were lower, but Malta has always hedged on large consignments of fuel for its energy needs. The agreement with Electrogas has to be renegotiated in the coming year.

Why are gas prices rising?

Several factors are fueling the price surge in natural gas and commodities such as oil and coal more generally.

As economies get back to business and consumers return to pre-pandemic activities, demand for energy is again rebounding. But producers of natural gas, such as Russia’s Gazprom, which supplies Europe, has been slow to hike output.

MEPs in a heated debate last week claimed Europe was also falling victim to geopolitical games in which Russia controls the source of energy that flows into the EU.

But a colder and longer-than-expected 2020 winter meant that European inventory levels were below average at the start of autumn.

Added to that are slow wind speeds that affected the output of renewable energy. When not enough renewable energy is produced, countries signed up to emissions trading scheme have to buy carbon credits from other countries. This has led to a competition for natural gas, hiking up prices.

Europe’s gas production has declined over the last two decades, and the continent now depends on imports from Russia. The country has limited supplies to Europe this year in what some have called a politically motivated move, although President Vladimir Putin said Russia would release gas stocks to alleviate the strain in Europe. 

The Oxford Institute for Energy Studies summarized this confluence of factors, noting it creates “this perfect storm.”