LNG carrier

EU Energy Ministers have successfully reached a deal on a soft gas price cap, which is activated as soon as gas prices surpass the €180 per megawatt-hour (MWh) threshold, among other conditions. The cap, also known as the market correction mechanism for natural gas, is intended to stabilise the price of natural gas for the foreseeable future, which has has seen it skyrocket since the Russian invasion of Ukraine, peaking in August (€350/MWh).

This deal is of particular importance for Malta, since natural gas is the main source of fuel used to supply the country’s energy mix (70.6 per cent), and even the main source of fuel used to generate energy which Malta imports through the interconnector (63.6 per cent).

Malta’s energy mix Source : Enemalta ltd

The Minister for Energy, Miriam Dalli added “What we have been experiencing across the European Union in the past few months has put much strain on our economies, households, and industries. We need different solutions to the current situation to attempt to lower the price of gas used for electricity. I believe that this regulation is one step in the right direction and, together with other decisions, has the potential to control energy prices to some extent.”

It is however worth noting that this isn’t a hard cap and is conditional to natural gas prices exceeding €180/MWh, for three consecutive working days and if they are higher than global gas prices by more than €35/MWh for the same three days.

The effects of the gas price cap won’t be felt directly by Malta’s households and businesses, since energy bills have already been stabilised through generous government subsidies, however, it is set to cool off the pressure on public funds, limiting the potential deficit. It will however impact the country nonetheless, as government subsidies are ultimately funded by the tax payer. Indeed, questions have been raised about the sustainability of the country’s finances after the state took a decision to freeze electricity and gas prices at 2022 levels.

This makes it the second energy-related price cap that the EU has agreed on this month alone, with a $60 (€57) price cap per barrel for Russian oil agreed on 3rd December 2022.

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