04 January 2006

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Business Today

More cheers from an oil rich 2006

Although drilling for oil in territorial waters has had its ups and downs, many contend that we cannot count on immediate success that oil can be discovered in commercial quantities, but prospects for 2006 seem brighter

The price of a barrel of crude oil in 2005 increased to over USD70 for the first time, making front-page headlines, as perhaps it should. Inevitably petrol prices in Malta also soared, reaching the third highest in Europe.
Naturally, governments use fuel as a means of tax collection and when the base cost goes up they are loath to reduce their tax intake.
In the short-term, fossil fuel prices are being driven up by war, political instability, natural disasters and other variables. The long-term outlook is clearer – global supplies are dwindling as demand soars, particularly in China and India, where automobiles are multiplying and economies are growing at breakneck speed. Oil and all its by-products are non-renewable resources. Oil reserves are becoming much harder to find and as the reserves become scarcer the price of oil increases. Many analysts are suggesting the current rise could well leave us with high prices this winter. Can we blame ourselves for not trying to drill for commercial oil supplies? Definitely not.
Malta has been trying to explore and drill for oil both inland and offshore but has never been blessed with a commercial success. Exploration work in the 1960s identified a number of hopeful sites to no avail. With the price of oil at its peak the impetus for further exploration may be more tempting and modern techniques could uncover new possibilities. Given that all neighbouring countries have successfully drilled for gas and oil in commercial quantities it is odd that Malta has not struck it rich so far. Yet vast tracts of acreage remain unexplored and in the near future exploration licences may attract the attention of US giants such the Oasis group and Occidental. In the late seventies we were encouraged by prospects that the southern banks closer to Libya could yield positive results. Our hopes were dashed when a dispute arose with Libya over the delineation of the continental shelf and this took a number of years to be resolved in the international courts. On a positive note, Libya supplied us with oil at subsidised prices for a number of years. Unfortunately, political decisions by our neighbouring countries have slowed down our chances of striking oil.
Only to mention that Tunisia’s decision to extend its sovereignty over a vast expanse of water close to Malta will have direct repercussions on oil exploration.
Reliable sources report that Malta’s Oil Exploration Division is at present conducting an oil and gas exploration project in the waters bordering with Tunisia and Libya in joint ventures with Pancontinental Oil and Andarko Petroleum Corporation. Can we strike it lucky this time? One may positively raise our hopes for better prospects in 2006. Just consider that two oil exploration companies have been granted licences by Malta’s Ministry for Resources and Infrastructure to study slightly less than 6,000 square miles adjacent to Tunisian and Libyan waters where over a billion barrels of recoverable oil are believed to be found.
It is encouraging that the applicants speak enthusiastically of an eventual contract with the Maltese government to drill oil wells by 2008 in an area they describe as having “high petroleum prospectivity”, but Tunisia’s impending official demarcation of its exclusive economic zone may deal a severe blow to Malta’s oil exploitation.
What lessons are to be learnt? Certainly the political arena needs to be tackled with the utmost care and diplomacy. We are totally dependant on fossil fuels and nobody can blame Enemalta for increasing the price of its products. But given its monopoly position on fuel and energy products, the public cannot be expected to accept it hands down; at least an alternative should be offered. The island is so entirely dependent on burning fossil fuel to operate heavy energy users such as reverse osmosis plants.
The bigger issue here is that Malta currently obtains 100 per cent of its energy from imported fossil fuels which eventually must be replaced by new and renewable wind and solar power technologies.
It is assuring to hear Public Investments Minister Austin Gatt announcing that Enemalta is dealing with pollution from the Marsa power station according to its obligations in terms of EU regulations. Pollution, he said, depended largely on the type of oil used. For the past year, Enemalta had been using oil that complied with EU standards, at an added cost to the corporation. Reverting back to the cost of power generation, we note that since many years, Enemalta has been actively looking into the possibility of joining the gas pipeline being laid between Tunisia /Libya and Sicily. Unfortunately for some unexplained reason this did not materialize and we are losing our golden chance to join the European grid though an underwater connection to Sicily. This would have assured us of a constant supply of cheaper gas as a substitute for burning oil at our power stations.
Although drilling for oil in territorial waters has had its ups and downs, many contend that we cannot count on immediate success that oil can be discovered in commercial quantities, but prospects for 2006 seem brighter.
Alternatively we need to seriously start considering alternative energy sources. It is true that the global wind industry is still in its infancy apart from the fact that predicting weather remains a clumsy business; yet there is a growing support from the EU commission which is laying down guidelines for the future of renewable energy.
Ideally a small country needs to have a stable supply of an alternative source of energy to fossil fuels. Lobbyists working against the concept of wind farms state that lack of land space is detrimental to any large scale investment in renewable energy projects. This mindset will seriously hinder the growth of the industry.
Ironically a master plan announced by MRA last year as a road map for developing solar and other renewable energies in Malta is eagerly awaited by environmentalists.
The MRA recently announced that it was working on a reform of the electricity sector, the regulation of utilities, exploitation of renewable energy and regulation of mineral resources. A serious attempt has to be made not to ignore the social and health costs of burning more hydrocarbons into an already heavily polluted atmosphere. The number of asthma sufferers and patients struck by lung cancer is on the increase. By comparison renewable energy sources such as solar and wind power are immune from market and political forces and are not a cause of disease.
Advanced technology exists to enable a radical overhaul of the way energy is generated, distributed and consumed. Much depends on the speed of reform instigated by the MRA; intended to introduce among other things, adequate economic incentives for private investment.
One day renewable energy sources will come in from the cold in a big way. It goes without saying that only countries that have wisely invested in this technology will reap huge dividends.
A happy New Year to all readers.

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Editor: Kurt Sansone
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