Libyan oil deal could make Malta ‘little Aberdeen’ of the Med

A memorandum of understanding for the purchase of Libyan oil products and joint oil exploration has prompted accolades from industrial players, with Medserv CEO Anthony Diacono claiming Malta has the potential to mimic the success of Europe's petroleum capital, Aberdeen, Scotland.

"If played well, if we work hard and diligently over this limited space, Malta has the potential to become a little Aberdeen. The Mediterranean Sea could turn into a little North Sea," Diacono, head of the oil logistics firm with a base in Malta and Misurata, Libya, said.

Prime Minister Joseph Muscat yesterday hailed the MOU for the supply of oil products and also crude oil to Malta as "groundbreaking", although the details on the proposals remain sketchy.

Yesterday, Energy Minister Konrad Mizzi told MaltaToday that the government already had its 'Plan B' if Libya agrees to provide the island with crude oil. "We could trade off the crude oil for refined oil. We have already checked this out with oil traders who confirmed that it's done and acceptable. We would give the crude oil to the trader or supplier, who in turn would provide us with the refined oil."

Although the rates agreed upon with Libya will not be made public for commercial reasons, Mizzi said they were advantageous: "There is an improvement on the price, and the credit terms are advantageous, providing us with interest-free credit for a long period of time."

The MOU signed on Monday includes fixed prices on cargoes of refined oil for power stations, petrol, diesel, jet fuel and LPG. If these products are not available, Malta will procure the crude equivalent.

On his part, Medserv CEO Anthony Diacono said the agreement could open up the doors for Malta to become "a centre of excellence" in oil and gas exploration in the Mediterranean.

With plans to now start operating from Sicily, Diacono said that Medserv previously lacked the possibility to conduct exploration activities in the Mediterranean. "I hope this arrangement would open once and for all the potential to finally turn Malta into a centre of excellence where opportunities created would be huge.

"Malta is an ideal location. With the infrastructure in place and the know-how, the island could start servicing this billion-dollar industry in more ways than one. The potential is huge and the multiplier effect in terms of jobs is even more. We are looking at Malta offering logistics and support for oil platforms in our seas, opening up jobs in engineering, provision of legal and accountancy services and so much more."

But Libya is currently at a crossroads, with armed groups blockading oil fields and terminals and choking output to a tenth of normal levels, according to international reports.

The situation is grave, to the point the Libyan government was forced to import fuel to keep power stations running.

But Libyan Prime Minister Ali Zeidan told the Maltese government this week that Libya plans on increasing its production and getting back on track by the end of this year.

"Once their production reaches a decent level, our agreement takes off," Energy Minister Konrad Mizzi said.

Additionally, the MOU's most significant part will be a joint initiative to explore oil regions disputed by both Libya and Malta.

"It will take time, but it's a positive step and I'm sure we will find a solution which is pragmatic for both sides. But it's clear that the most disputed areas are those with clear oil potential," Mizzi said.

"First we'll see how the disputed areas should be tackled; then we'll start drafting strategies and see what studies need to be carried out, pinpoint the areas and eventually enter into a partnership with the private sector to start drilling.

"There will be commercial agreements with Libya that need ironing out. But signing this agreement is already a huge step forward, since before no agreements could be reached."

But what's in it for Libya?

The memorandum of understanding delves into services which Malta could provide in various sectors, including health, transport and an English-language training centre serving as a base for Libyans working in the oil industry.

Of more significant importance to Libya is Malta's proximity to Europe, serving as the perfect stepping stone for Libya to start supplying its gas products to Europe. "We are looking at using the existent infrastructure in Malta to serve as storage, while not ruling out the setting up of pipelines and other connections between Libya and Europe, using Malta as a transition point," Mizzi said.

Enemalta's bunkering services could come in useful, providing its own storage facilities.

Malta still has a full year left of procuring oil for its energy generation needs, with the Delimara power station running on heavy fuel oil until its future conversion to liquefied natural gas.

With its debt reaching €840 million and credit rating agencies continuously sounding the alarm on its sustainability, state utility Enemalta loses millions every year, has a very high energy production cost and power cuts remain a challenge.

Labour hopes a gas supply and power-purchase agreement will address high energy and generation costs.

The Libya oil procurement deal would provide a short-term solution in cutting down the costs of buying oil. But beyond balancing its financial position, another challenge will be Enemalta's electricity distribution system, which Mizzi says is "crumbling".

"With all the good intentions in the world, power cuts keep on occurring as soon as there is a surge in demand. To tackle this once and for all we need to address the distribution system's infrastructure."

Simply put, an overhaul of the system - new cables, new substations and new equipment. Mizzi said Enemalta was currently developing a new strategy addressing its distribution networks, which will include better utilisation of its properties and sub-stations across the island.