So, for the first time, Energy Minister, Miriam Dalli has spoken about her gas trade for the first time after she announced it in last April, during an interview with Tim Diacono of Lovin Malta. Diacono challenged Miriam Dalli by saying that Malta is losing money in its gas purchases after having pegged the future purchases with Brent crude oil price changes with the result today being that gas prices have gone down much lower than oil.
Miriam Dalli replied by saying they are not losing any money on their trade, and that they are keeping prices stable. For sure, they are stable, but in the higher range with Malta paying a high premium on its gas purchases. She gave reasons in a confusing way that don’t add up as to why the trade is not losing money but unwittingly said something which actually is negative to her case when she said that “traders are refusing to make long-term trades” assuming because of the volatility. But this is in fact, exactly what Miriam Dalli and her ministry did: they did a long-term trade betting that gas prices will remain exorbitantly high while oil prices will go down when the result was the opposite. Miriam Dalli has also said that energy prices would go up again and that is probably very true but the rise in oil will once again remain higher and its price will remain more elevated than the price of gas compared to pre-war prices and her trade will still remain in the red.
The problem with Miriam Dalli and many others who bought the Russian propaganda that Europe will freeze without Russia’s gas is that they are refusing to look at the fundamental picture that this is simply a supply issue that could be addressed surgically by building infrastructure and finding new suppliers and that is what Europe did. The reality is that Russia would want you to believe that gas prices will remain elevated in the long-term so that you keep paying a premium on your long-term purchases or futures contracts.
Another point that Miriam Dalli mentions is that the gas price cap instituted at the end of December helped bring prices down, but this has had no effect on the market because the caps work as long as they are practiced by international buyers and the current biggest buyer of Russian gas, China, was already buying Russian gas at a 50% discount at market prices months before the cap was instituted. The oil cap, on the other hand, worked more effectively because India as a major buyer of Russian oil preferred to choose to adopt European caps for opportunistic reasons.
And to conclude a contract-for-difference is not a hedge, but it’s the actual contract by which Enemalta is buying gas at the contractual difference with oil prices. The spread between the market price and Enemalta’s contract-for-difference would right now, most probably be at a very extended level, hence paying a premium on our gas supplies. Any experienced gas traders who would like to weigh in are welcome. I’m just a dumb idiot trying to figure out what the government is doing given that it is keeping everything secret.
For me, one of the best indicators that the gas situation in Europe was stabilised was the constant stream of gas supplies which many suspected would not happen. Take a look at Germany’s gas storage levels which are even better than average. Warm weather has undoubtedly helped the price go down for sure, but still many are neglecting the most important thing: constant supply and a globally improving supply chain. Meanwhile, Russia has lots of gas which is desperate to sell at a discount.