Malta – a sustainable energy plan wanted

Readers may want to know the background information concerning supply of oil and gas by pipelines served from a Russian source passing through Europe.

To start with we noticed that there are number of feeders passing over Ukraine territory and this has been crucial for Russia to deliver its gas to Europe. However now it is seeking to bypass (somewhat ironically) the Druzhba (‘Friendship’) pipeline network, through underwater pipelines via the Black Sea. Russia is already underway in talks with Greece, with the latter insisting this is not a means of retaliation to the EU for its debt crisis feud. Furthermore, Russia will seek to double in size its Nord Stream pipeline, which goes through the Baltic Sea in through Germany. 

However, the EU has different plans, seeking to consolidate Europe as an Energy Union, while looking to diversify its chain of suppliers. Algeria has the tenth largest gas reserve in the world and is only currently using less than half of its gas-line capacity to Europe, with the EU saying it wishes to “unlock the potential of Algeria”.

Malta is no stranger to underwater energy supply. With the interconnector inaugurated last April, Prime Minister Joseph Muscat declared that studies for a gas pipeline are “at an advanced stage”. Yet, the nature of this project is much less politically driven than those discussed earlier. The proposed pipeline would connect the Delimara power station to Gela in Sicily. 

Historically, Malta has used heavy fuel oil and gasoil for power generation. Having no indigenous fossil fuel sources, Malta is wholly dependent on imported fuels, making our economy vulnerable to international fluctuations in fuel prices. Furthermore, there is ever-increasing demand for energy and with a decaying power infrastructure, new alternatives are needed. Using gas, Enemalta aims to meet both current and future demands while satisfying environmental goals at lower costs. 

An Enemalta study stated that, a power system where both an interconnector and a gas pipeline are working in tandem proved to yield the lower total system cost when compared to a system with only an interconnector in place or even no interconnector or gas pipeline at all. In fact, this option had a NPV between €3.4 billion and €5.7 billion, downing it by 18% and making it the most attractive from a technology and commodity dependence point of view for the coming 25 years. In general, all scenarios entailing gas systems were always cheaper, except when fuel prices would be low since in such cases consumption of liquid fuels (such as oil) would be more favourable. 

The scenarios considered were done in light of availability of gas, power demand, fuel prices and the existence of an interconnector. Also taken into consideration were Italian power prices, reserve margin requirements in the Maltese power system and commercial terms for gas purchasing options. Assessment was based on financial performance of the project chosen, the security of consistent supply, fuel storage requirements, dependence on external sources and countries, dependence on one commodity/technology and environmental performance. 

An interesting result is that with the availability of gas, CO2 and NOx emissions would actually increase; when gas is available, it would be more cost effective to produce energy rather than import it through the interconnector. However, excluding both gas and the interconnector facility would lead to significantly higher CO2 and NOx emissions. 

It would also be necessary to consider fuel storage requirements so as to make up for times when pipeline gas is unavailable. Such requirements would obviously be lower with the interconnector in place. Making use of liquid fuels for local power generation imply higher storage requirements, although pipeline deliveries do not necessitate storage systems to function, experts advise that it would be wise to set up storage for LNG. 

Realistically speaking, Malta will always be dependent on external sources. Particularly, importing gas would always lead to reliance on a given country since import arrangements in this field are generally of a long-term basis. The use of an interconnector will obviously lead to Malta solely depending on Italy, reducing security of supply especially when the interconnection is heavily used.      

Malta is also seeking to connect itself to the Trans-European Natural Gas Network via a pipeline connecting Delimara to Gela, Sicily. Constructing this pipeline will involve considerations for alternative routes for the Sicilian onshore section, a study for an offshore pipeline section and finally Maltese onshore pipeline routes. Intuitively, the greatest challenges are presented by the offshore pipeline section due to the Mediterranean seabed morphology, engineering limitations, maritime boundaries and human activities. Approaching the Maltese shore presents a tough challenge due to busy shipping traffic and dense human activity, notably due to the proximity of the Malta Freeport to the Delimara Power Station. Three potential routes were identified, one entering directly Delimara, another meeting the coast at Kalanka tal-Gidien and another one landing at Sala Rock near Marsaskala. In light of the previous considerations, the Sala Rock option seems to be the most feasible. Choosing this option would however necessitate the construction of a pipeline network that delivers gas from Marsaskala to Delimara.  

A 136km long, 16” wide Gela-Sala pipeline requires an estimated capital expenditure of €98.6 million. The EU has also approved of the plan, accepting the project as a Project of Common Interest eligible for co-funding. Malta is also seeking to obtain access to the Trans Adriatic Pipeline, which delivers Azeri gas supplies to Italy across the Adriatic Sea. 

As stated earlier, a pipeline would make us heavily dependent on Italy. Despite Italy being a strong partner through the EU, our politicians have always been fascinated by the idea of finding our own oil, after all who wouldn’t? The Mediterranean has smiled at many countries in oil exploration, but not to us. Over 56 years, 13 sites have been drilled, with zero success, the last being abandoned in July 2014. We have even asked our beloved Holy Mary, naming one well ‘Madonna taz-Zejt,’ in her honour, and let’s not forget; she somehow managed to deliver the convoy back in 1942. Prospects to tap gas reserves seem bleak. 

Answering a parliamentary question by PN MP Marthese Portelli, Transport Minister Joe Mizzi replied that although no oil has been found, these attempts yield important information and government will still commit itself to oil exploration. The Continental Shelf Department currently inform us of three ventures which are exploring Maltese waters for black gold; Heritage Oil, Capricorn Malta Limited  together with Melita Exploration Company Limited and Ratio Malta Limited. 

Capricorn-Melita venture is currently analyzing a 2D seismic survey it conducted in April of last year, with its license being extended to allow more time for further analysis of the outcome of a seismic survey. Ratio Malta signed a two-year exploration study agreement last February. At present, the latter is interpreting and reprocessing existing data. 

It is necessary to note that a MoU signed in Baku between Malta and Azerbaijan set out the “general terms for negotiations” for strategic cooperation in the petroleum sector and energy related projects. Included is also the strategic collaboration in oil and gas exploration and production. This means that Malta can in the near future have an investment by Azerbaijan’s Socar to explore our waters. Malta is determined to “transform the Maltese Energy and Petroleum sectors into key value added economic activities,” despite plummeting oil prices. This was supported by the intent between the two parties to “develop an LNG Hub for storage and distribution of LNG products both for the local market and abroad”. 

A similar deal has been signed between Malta Enterprise and Singapore’s IEG. Malta Enterprise expressed its intent on transforming Malta into a “major oil and gas trading, brokering and processing hub” in particular thanks to our geopolitical location, serving as a connection point for several continents. 

The author is an economist at PKF Malta [email protected]