Ever since last year, I have been following closely the natural gas market due to the Russian invasion of Ukraine. I was short natural gas in September last year, and I also followed the story on the Maltese government’s gas purchase for which it issued subsidies to keep electricity prices low. Malta’s gas purchases were made by Miriam Dalli in a contract signed last year in April for gas purchases to be indexed-linked with oil price changes. Miriam Dalli’s Ministry of Energy speculated that gas prices were to remain high and oil prices were to go lower but in fact, the opposite happened as gas prices crashed and oil prices remained elevated. This means that Malta is purchasing natural gas at premium prices.
Thanks to a parliamentary question by Mark Anthony Sammut we know of the amount of gas purchases made by the government’s main energy purchases and electricity distributor, Enemalta. At face value, the amounts look low and therefore my previous estimates of the loss incurred on the purchases are too high. This also clearly means that most of Malta’s electricity is brought via the interconnector with Europe. There is no information on the gasoil purchases for what was the previous BWSC plant.
I made some rough estimates on the gas purchases. From May 22 to October 22, we have 1803201.6 mmBTU. For this period the government seems to have bought gas at around 4% discount to market prices. My work is very rough and very simple, and I take a rough average of the gas prices skewed to the price trend of the period compared with a rough average of the government’s purchasing price which is calculated against a difference to the oil price when the agreement was first signed. I have taken $7 as my benchmark for the gas price given that the contract was announced roughly around 14th April 2022. Although the European gas price is different, the degree of price changes would remain roughly the same. I did not include the external costs such as transport.
As for the other succeeding periods, the government clearly bought gas at a premium compared to market prices buying gas at around 40% higher compared to market rates. If gas purchases had been at around $8.3 million at market prices in the second period, the government’s purchase would have been around $11.4 million. From May 2023 to September 2023 the market price of the purchases would have been around $4.9 million with the government’s purchasing price hovering around $8.1 million.
However, the amounts listed are small, so either Malta is making less use of its gas-fired power station or most of the purchases are being made by Electrogas on behalf of Enemalta. Electrogas has made a staggering profit last year.
What’s interesting is that last year, Malta’s electricity price was at the top tier range in Europe and on par with Italy. So, the ย1 billion of subsidies during the span of three years would have mostly served to tamp down prices of the interconnector from where we get most of our electricity.
Note, that I am working with very limited data and information and it is quite ridiculous I have to write and research this stuff given that the government should be transparent straight away. There is absolutely no good reason for a government to hide the purchasing price of its energy supplies. In principle, energy commodities are traded in the open market with an auction process so it’s only by publishing prices you can incentivise other market participants to make lower offers. A government would hide this information only because it would benefit the supplier and/or the agreement with the supplier is skewed in their favour.
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