Do we need a na­tional oil com­pany?

Malta Independent - - BUSINESS & FINANCE -

as it has no in­dige­nous fos­sil fuel sources, so elec­tric­ity gen­er­a­tion is wholly de­pen­dent on im­ported fu­els. Fur­ther­more, there is ever-in­creas­ing de­mand for en­ergy and run­ning De­li­mara power sta­tion with a dis­mal low ef­fi­ciency rate of pro­duc­tion (ex­cept for the BWSC plant) had forced the pre­vi­ous ad­min­is­tra­tion to charge high util­ity rates.

The change in gov­ern­ment in 2013, saw new al­ter­na­tives put in mo­tion. Adding gas to its fuel mix, Ene­malta (the ma­jor­ity owned State elec­tric­ity com­pany) aims to meet its fu­ture de­mand while sat­is­fy­ing en­vi­ron­men­tal goals at lower costs. It was a smart move to com­bine an elec­tric­ity in­ter­con­nec­tor link with Italy and con­cur­rently build a new gas-fired power plant with a Liq­ue­fied Nat­u­ral Gas fa­cil­ity (LNG) added later. And this apart from the drive to con­vert the con­tro­ver­sial BWSC power plant to run on nat­u­ral gas once the new LNG fa­cil­i­ties are built. The gov­ern­ment hopes that when the pro­ject is ready the com­bined sys­tem would see sub­stan­tial sav­ings. The Cham­ber of Com­merce con­tin­u­ously urges the gov­ern­ment to of­fer cheaper rates to in­dus­try.

Back on the sub­ject of a gas pipe­line, talks to ap­ply for fund­ing started in late 2012 and it is an­tic­i­pated that when this is com­mis­sioned it will con­nect the De­li­mara power sta­tion to Gela in Si­cily. A de­gasi­fi­ca­tion plant is nec­es­sary in De­li­mara, as this fa­cil­i­tates the un­load­ing of LNG tankers and will im­prove fu­ture prospects for cross border trad­ing and pos­si­bly fur­ther stor­age re­quired in Has Sap­tan un­der­ground ter­mi­nal.

Last year, Prime Min­is­ter Joseph Mus­cat led a del­e­ga­tion to Al­ge­ria as the coun­try has the 10th largest gas re­serves in the world and is only cur­rently us­ing less than half of its gasline ca­pac­ity. Re­al­is­ti­cally speak­ing, Cen­tral Europe will al­ways be de­pen­dent on ex­ter­nal sources so in the light of this, the im­por­ta­tion of gas de­pends heav­ily on Gazprom – the Rus­sian state mo­nop­oly. Coun­tries in the Le­vant such as Cyprus, Egypt, Le­banon and Is­rael are in dis­cus­sions on how best to mon­e­tize their gas de­posits and eval­u­ate dif­fer­ent op­tions on how to ser­vice fu­ture cus­tomers.

It is not sur­pris­ing that Malta is fi­nally awak­en­ing to the re­al­i­sa­tion that it pays if in the near fu­ture it con­nects to the Tran­sEuro­pean Nat­u­ral Gas Net­work via Gela, Si­cily. This is a smart move as this pipe­line will pro­vide al­ter­na­tive routes for the Si­cil­ian on­shore sec­tion, routes for an off­shore pipe­line sec­tion, and fi­nally Mal­tese on­shore pipe­line routes. Ob­vi­ously, the great­est chal­lenges are pre­sented by the off­shore pipe­line sec­tion and this will reach its nadir if Malta dis­cov­ers its own off­shore gas re­serves. En­vi­ron­men­tal­ists may com­plain that lay­ing such a gas pipe­line will en­dan­ger the Mediter­ranean seabed mor­phol­ogy, face en­gi­neer­ing lim­i­ta­tions, mar­itime bound­aries and upset sea­far­ing ac­tiv­i­ties. How­ever, the gov­ern­ment an­nounced this sum­mer that a ten­der was is­sued for fea­si­bil­ity study for lay­ing a gas pipe which, when and if com­pleted, will link us to the Euro­pean gas mar­ket.

The en­gi­neer­ing firm that wins it will be re­quired to iden­tify the best 1.2km wide route through a de­tailed study in­clud­ing con­cep­tual de­sign of the pipe­line and land-based in­fra­struc­ture; iden­tify the con­nec­tion points, on­shore routes and sites for the ter­mi­nal sta­tions in both Gela and De­li­mara. The firm will also be re­quired to sat­isfy the Ital­ian au­thor­i­ties and to ini­ti­ate the pre-ap­pli­ca­tion per­mis­sion process in both Malta and Italy. Ad­di­tion­ally, in the near fu­ture, there is the pos­si­bil­ity to ex­port gas to Italy sourced from a float­ing stor­age and re­gasi­fi­ca­tion unit (FRSU) ideally lo­cated in a pur­pose-built break­wa­ter and off­shore ter­mi­nal. This could po­ten­tially be con­sid­ered as a sec­ond phase of the pro­ject.

Last year, the pipe­line study was favourably con­sid­ered by the Euro­pean Com­mis­sion and was awarded a max­i­mum grant of €400,000. Me­dia re­ports show that Malta has re­tained its PCI sta­tus con­cern­ing projects of com­mon in­ter­est – se­lected from among 195 projects for Europe’s en­ergy and cli­mate ob­jec­tives as part of its EU’s En­ergy Union. It is strange, how in the past, the gov­ern­ment and Ene­malta took the os­trich at­ti­tude when it per­sisted in lim­it­ing its elec­tric­ity gen­er­a­tion op­tions. The rigid pol­icy adopted by di­rec­tors of Ene­Malta to stick ex­clu­sively to im­por­ta­tion of oil and face the prob­lems of emis­sions amid the va­garies of oil prices is an enigma when one con­sid­ers how more ef­fi­cient the cur­rent plan which takes into con­sid­er­a­tion a num­ber of op­tions where to source elec­tric­ity sup­ply.

It is a pity that in the past our com­pet­i­tive edge suf­fered a dis­ad­van­tage with in­dus­try hav­ing to pay the high­est tar­iffs in Europe. Thus, the change in gov­ern­ment pol­icy to re­form a Byzan­tine en­ergy pol­icy came not a mo­ment too soon. Cyn­ics may say it is sour grapes to re­mind our­selves of how a golden op­por­tu­nity was lost in 2004 when ENI (the Ital­ian State oil com­pany) of­fered us a free link to the Green­stream pipe­line .This ac­tive gas pipe­line is 540 kilo­me­tres long and runs from Mel­li­tah in Libya to Gela, in Si­cily. It is lo­cated in wa­ter depths ex­ceed­ing 1,100 me­tres and it is sup­plied from the Bahr Es­salam off­shore field, Bouri Field and Wafa field near the Al­ge­rian border. In 1999, the Ital­ian en­ergy gi­ant Eni wanted to pass a gas pipe­line from Libya to Si­cily through Malta off­shore wa­ters but af­ter dis­cus­sions with the gov­ern­ment they re-routed their pipe for undis­closed rea­sons.

The Libya to Italy pipe­line had cost €7 bil­lion but to be fair one must ad­mit that this on­cein-a-life­time op­por­tu­nity of gas sup­ply would not have ben­e­fit­ted Ene­Malta in 2004, as this would have meant de­com­mis­sion­ing the age­ing (oil fired) De­li­mara plant and re­place it, at a heavy cost, by modern gas tur­bines. Now, just over a decade later, we are pleased the EU will fund the pro­ject for lay­ing a gas pipe­line to Gela.

gmm@pkf­ The writer is a part­ner in PKF an au­dit and busi­ness ad­vi­sory firm

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