An undulating oil price escapes our notice

ducing countries accounting for 40 per cent of global output, is trying to reduce output by about 1.2 million bpd as part of a deal with Russia and other non-OPEC producers in a plan which it aims to continue until the end of 2018.

Due to such measures it comes as no surprise that oil price hit $71 a barrel this year for the first time since 2014. So far, there has been no imminent rise in the price of petrol/diesel in Malta but recently in the UK, the price of unleaded petrol has risen by nearly 5p since last November to 121.27p per litre, while diesel prices have jumped 3p to 123.97p over the same period. UK is making noises to intensify a drilling programme in the Scottish waters encouraged by the rise in oil price.

Such talk excites those who want the Scots to try again for independence and if successful take control of oil revenue. Ideally, the extra millions can be saved for posterity in an investment fund, as Norway has done. So if nationalisation happens this could bring in roughly an extra £1 billion a year to the Scottish exchequer.

In Malta last year, a National Oil Company was incorporated to help promote upstream business, so, can we hope that behind closed doors there are plans to kick start the drive for exploration? Another harbinger is the persistent rise in the price of oil.

As an island, we still rely 100 per cent on fossil fuel for electricity generation albeit now on LNG given that our dependence on renewable energy is under seven per cent and it does not look as if it is going to triple in the short term. Therefore, the global oil price is an important factor as we are an importing country. Rising global demand and falling OPEC supply may yet increase more pressure on the oil price. Martijn Rats of Morgan Stanley says that to keep the market roughly in balance with shale-producers in the US planning to raise output from 5.8m barrels a day (b/d) to 10m b/d over the next 12 months.

This may have a stabilising effect on the international oil price as Brent crude hovers above $70 a barrel, and when OPEC and the other petro-states meet again, they all expect oil prices to continue to increase. This means that, as stated earlier, in the short term one expects oil prices to gradually rise to the next range of $80 to $90 a barrel making a fresh impetus for Malta’s political strategists to contemplate new exploration initiatives.

Late last year, a scoop by the Times of Malta (ToM) announced that the government appears to be trying to start a new push for oil and gas exploration in Maltese waters after a hiatus of six years. ToM reported that the official journal of the European Union issued a notice says that Blocks 1, 2 and 3 of Area 3, an area of 6,000 square kilometres north of Malta, are now available “for authorisation on a permanent basis under either an exploration licence or an exploration and production licence”.

The National Oil Company is expected to announce a ‘licensing round’ to attract consortia for the three blocks on offer. History has taught us a lesson on upstream initiatives that we need to continue political negotiations with neighbouring countries to resolve any delineation disputes regarding our Continental shelf. The ideal solution would be to start looking for investors to search for gas in our offshore waters emulating the success of Cyprus, Egypt, Libya, Tunisia and Algiers. Some may say this is a pipe dream. Realists might assert that provided sufficient capital is invested in exploration this may in the near future enable us to export our own hydrocarbons to Europe via a submarine pipe connected to Sicily.

Will our political leaders stop and reflect that we have no current exploration activity planned for the near future? This may be an unpalatable story since despite a lack of discoveries in both oil and gas in six decades, we have been repeatedly reminded by top geologists that the prospect for discoveries in the Maltese continental shelf is bright and that we should not shy away from starting an intensive exploration programme. Historically, Malta has used heavy fuel oil and gas oil for power generation as it has no indigenous supply of fossil fuel, so electricity generation is wholly dependent on imported fuels.

One augurs that our search for hydrocarbons will be rekindled now that the price of oil is heading upwards – perhaps we can allocate part of the funds in our emergent Passports Sovereign fund for this exciting albeit risky adventure. This means putting our money where our mouth is.