Enemalta, Malta’s energy provider, has signed new agreements to lock in prices for “a substantial volume” of the country’s supply of Liquified Natural Gas.
Under the deals, the state energy supplier will set the price of varying volumes of gas at different rates, in a move the government says is intended to keep utility bills stable and absorb the impact of possible price hikes.
This, coupled with additional support the government has allocated.
Energy Minister Miriam Dalli told Times of Malta that financial agreements were reached with “a third party” in recent days.
It is understood the contracts were signed with Italy-based energy utility company Enel Trade S.p.A in what is effectively a form of price hedging by another name.
Rather than lock in the price of gas as it had done in the previous legislature, Malta is now pegging, or ‘indexing’ the price against another commodity – Brent crude oil.
The agreement for a locked price set with the Italian utility is intended to minimise the island’s exposure to fluctuations in Brent prices. “These are challenging times and the government’s policy direction is that of stability,” Dalli said.
The main priority, she said, was to minimise changes in utility prices for consumers.
The government would not divulge the price and volume of the commodity Malta has committed to secure, citing commercial reasons.
However, Enemalta sources said the so-called “contract for difference” provides a cushion for changes in the LNG market price, creating the same effects as a hedging agreement.
Electrogas will purchase the LNG
They said Malta has already secured a “substantial volume” but has left pockets available to make other deals in the future should prices drop.
The actual purchases of LNG on the international market will not be made by Enemalta, which has only set the price at which it must be bought.
Instead, Electrogas, the company behind Malta’s controversial gas-fired power station, will buy the gas it needs to produce electricity.
A perfect energy storm has been brewing for several months between the pandemic-induced slowdown in production and the Russian invasion of Ukraine – a major gas supplying region.
These are challenging times and the government’s policy direction is that of stability- Energy Minister Miriam Dalli
This has led to wholesale gas prices more than doubling over the past year. Consumers in Malta, meanwhile, have been largely unaffected by the crisis so far as the government sought to absorb the rising costs.
Malta’s energy mix – the types of energy supply it relies on – is predominately made up of LNG supply.
However, other sources include electricity sourced from the Malta-Italy interconnector.
The price of energy from the interconnector, sources said, has skyrocketed in recent months and soaked up a considerable amount of the €200 million the government has dedicated to cushioning energy price rises.
Carbon credits have shot up in price
Another pressure on Malta is the price of what are known as carbon credits.
Carbon credits are purchased for every tonne of carbon emissions a country produces.
Government sources said the cost of these credits has also shot up. In 2018 a carbon credit was valued at around €5 and today it is traded between EU member states at anything between €75 and €90 each.
Although Malta has registered an increase in the use of renewables, it is still only at around 10 per cent of its supply.
Malta has committed to reduce emissions by 19 per cent by 2030.