Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 11th November 2021

Readers may ask: what is the point of spending millions to lay a gas pipeline to Italy other than to use it exclusively for electricity generation? The answer is that gas supply via a pipeline guarantees more flexibility/stability in prices and opens future opportunities to render us able to become an export hub.

Again, having redundancy in power supply makes us more flexible and assures us that future increases in electricity demand will be not be a problem. The Melita TransGas is promoting a 159km long pipeline project, from Delimara (Malta) to Gela (Italy), that will end Malta’s gas isolation as recently it received a planning permit.

This permit includes a measure of land reclamation to build a terminal station at the Delimara power station, a micro-tunnel route running through the Delimara peninsula and the laying of an offshore pipeline between Delimara and Gela, Sicily. Malta had obtained successfully won a derogation from the European Commission allowing the proposed hydrogen-ready pipeline to be recognised as a Project of Common Interest by the EU.

The Melita project is currently being redesigned to allow for the transportation of blends of hydrogen, biomethane and natural gas and up to 100 per cent hydrogen. Once implemented, the pipeline will replace the need of the current LNG supply infrastructure by bulky FSU vessels (see picture).  The Melita pipeline would land at the port of Delimara, which will require an additional area of 8,000sq.m to be reclaimed from the sea.

It is interesting to note that Enemalta has, up to 2015, been buying heavy fuel and gas oil for its power generation. A change of government in 2013, saw new alternatives put in motion. A consortium composed of GEM Holdings, Siemens and Socar (an Azerbaijani State company) won the tender to supply electricity using LNG as its main fuel.

The company, Electrogas contracted with Enemalta to provide 80% of future demand based on a fixed concession of supply running for the next 18 years. The government argues that using the Electrogas option affords a diversified system; that is alternating with the BWSC plant and switching to the interconnector with mainland Italy. Back on the subject of a gas pipeline, talks to apply for funding started in late 2012 and it is anticipated that when the Melita pipeline is operational, this event is a historical moment.

Malta can expand its options for importation or eventual export of natural gas/ hydrogen. This may prove to be a turning point for our oil starved island. The finance minister solemnly announced when presenting the 2022 budget that the island possesses no mineral wealth. This is factual. Critics remind us that due to political reasons we have neglected to iron out differences on territorial squabbles with neighbouring countries over the vast Continental shelf.

With oil prices currently at a high and (may reach $85 per barrel) coupled with a major scarcity of natural gas it cannot escape our political leaders to reopen the doors for exploration.  Some may say this is a pipe dream (apologies for the pun) arguing that unless we appoint experts to administer a structured National Oil Company, the vision will fail as a damp squib.

Realists may assert that provided sufficient capital is invested in exploration this may in the near future improve our chances of striking oil and gas. Hey presto, this vision shall enable us to export our own hydrocarbons via the Melita pipeline to Europe. We have been repeatedly reminded by top geologists that the prospect for discoveries in Malta continental shelf is bright and that we should not shy away from starting an intensive exploration program. Granted, this is a risky sector but who dares wins say the adage.

Realistically speaking, Central Europe will always be energy dependent on external sources so in the light of this, experts warn that the importation of gas currently depends heavily on Gazprom - the Russian state monopoly. Currently, it intends to step up deliveries via the new North Stream 2 pipeline.

It is comforting that Malta is finally awaking to the realisation that Melita pipeline will be linked to the Trans-European Natural Gas Network via Gela, Sicily. This is a smart move as this pipeline will provide alternative routes for the Sicilian onshore station and finally access to Maltese onshore pipeline routes. Intuitively, the greatest benefit in connectivity is represented by the offshore pipeline link and this will reach its zenith if Malta discovers its own offshore gas reserves.

Environmentalists may complain that laying of such a gas pipeline will endanger the Mediterranean seabed morphology, face engineering limitations, maritime boundaries and upset seafaring activities. It is strange, how in the past decade, both the government and Enemalta procurement committee adopted an ostrich attitude to limit choice of fuel for electricity generation to oil. This inflexible policy adopted by directors of EneMalta made it face the problems of emissions amid the vagaries of oil price.

With hindsight, it is an enigma when one considers how more efficient and cheaper is the conversion of turbines to gas.  It is a pity that this policy resulted in consumers paying highest utility rates in Europe. Thus, it came not a moment too soon the switch in government policy to jettison such a Byzantine energy policy in 2013.

Cynics may say it is sour grapes to remind ourselves of how a golden opportunity was lost in 2004 when we refused an offer by ENI (the Italian State oil company) when it finished the laying of a submarine gas pipe linking Libya to Italy via the Greenstream project. Malta was gratuitously offered to be linked to the gas pipeline but refused for undisclosed reasons. This dynamic gas pipeline is 540 kilometres long and runs from Mellitah in Libya to Gela, in Sicily.

With a sense of deja vu, we lament for the lost opportunity yet now can console ourselves that EU will help us fund the €400 million Melita pipeline project. Will this usher an international call for oil/gas exploration. Do not hold your breath.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 11th November 2021
Get in touch: info@pkfmalta.com