News | Sunday, 14 December 2008

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Mapping the Mediterranean’s energy field

Matthew Vella
As Malta looks forward to joint oil exploration with its Mediterranean neighbours, hopes abound over securing a solution to a 20-year impasse with Tunisia and Libya.
With Italy now on board, Libya and Malta are to hold a meeting in the near future on the delineation of the continental shelf for oil exploration purposes.
Foreign Minister Tonio Borg hopes to secure an end to the delineation saga before his five years in office are up.
Malta’s grand quest for oil picked up speed in the 1970s, two decades after first trying its luck with an onshore licence in 1954, after oil had been discovered in Ragusa, Sicily, a year before. Four wells were drilled between 1971 and 1973, with only one registering oil shows.
Soon enough, things would come to a head when in 1980, Texaco’s drilling in the Medina Bank was brought to an end by the continental shelf dispute with Libya, which was subsequently resolved – not to Malta’s favour – at the International Court of Justice.
Efforts continued in 1985 with two wells, and four production licences awarded in the early 1990s. In 1998, the government itself drilled an onshore well at the Madonna taz-Zejt in Gozo, where it found sub-commercial quantities of gas.
Since then, the government has been licensing various blocks south of Malta to foreign oil companies, where drilling is expected to start by 2010.
But a critic of Malta’s progress in the area of oil exploration, Labour whip Joe Mizzi, insists oil can be found off Malta, particularly around Gozo, but that government is not doing all it could for oil exploration to be successful.
According to past comments by Mizzi, the small quantities of oil around Malta could have attracted a small oil company before the global financial crisis dashed all hopes of this endeavour.
But Mizzi’s claims are not taken seriously by government. In parliament, Resources and Rural Affairs Minister George Pullicino has said that Mizzi has never backed up his claims on the presence of oil.
Problems dogging Malta’s oil exploration effort have never abandoned the island. In February 2008, the National Oil Corporation of Libya informed Heritage Oil, which has a production sharing agreement with Malta, that its licence area lies within the Libyan continental shelf and demanded that the company refrain from any activities in the area.
In their annual report, Heritage Oil responded that the Libyan government’s claims are unfounded.
Heritage Oil was awarded a licence by the Maltese government in December 2007 for exploration of its south-eastern blocks. The areas have had only one well drilled back in 1980, which failed to reach target depths of 1,500 to 4,500 metres.
The origins of the Malta-Libya dispute concern the demarcation of the continental shelf and the median line separating the two countries.
Short of an agreement that delineates the international border in the disputed area once and for all, the only feasible way out is to enter into a joint exploration effort with the Libyans.
Pancontinental Oil, an Australian company which also operates a licence granted to it by the Maltese government, said in 2006 that two particular areas it was surveying held world class oil prospects. The company says the main prospects it has identified have “very significant potential and are in the same geological province as the very large oil and gas fields offshore Libya and Tunisia.”
But further studies in the zones had to be postponed by six months at the request of the Maltese government until the dispute with Libya was resolved.
Mediterranean Oil & Gas (MOG), the owner of the Ombrina Mare oil and gas field, already has a long history of Italian and French operations, and is now farming out drilling prospects in Malta’s area 4, which is the southernmost prospect bordering with Libya.
The petroleum assets could be either an extension of Libya’s Sirte basin – known for high recovery rates and crude quality – or Tunisia’s Metlaoui basin. According to MOG, a number of large prospects and leads have already been identified. The best estimate of the prospective resources identified was an impressive 1.5 billion barrels, with up to 14 billion barrels of oil in place. Another oil company, Leni Gas and Oil, has farmed into area 4 with a 20% working interest with MOG.

Libya’s big business
Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), holds the largest proven oil reserves in Africa, followed by Nigeria and Algeria, and the ninth largest oil reserves in the world with 41.5 billion barrels. With oil production at 1.8 million barrels per day as of 2006, Libya has 63 years of reserves at current production rates if no new reserves are found.
There is no coyness about Europe’s and the United States’ rapprochement with former pariah Muammar Ghaddafi. Libya is highly attractive because of the low cost of oil production, as low as $1 per barrel at some fields in the Sirte basin.
About 80% of Libya’s proven oil reserves are located in the Sirte basin, which is responsible for 90% of the country’s oil output. Libya remains “highly unexplored” and only around 25% of Libya is covered by exploration agreements with oil companies. The under-exploration of Libya reflects the impact of former sanctions and also stringent fiscal terms imposed by Libya on foreign oil companies.
In September 2003 the UN Security Council officially lifted its sanctions over Libya. On February 26, 2004, following a declaration by Libya that it would abandon its weapons of mass destruction (WMD) programs and comply with the Nuclear Non-Proliferation Treaty (NNPT), the United States eased its economic sanctions against Libya.
On the same day, Libya’s NOC announced its first shipment of oil to the United States in over 20 years.
However Libya is also being challenged by the fact that its oil fields have experienced a 7% decline rate, and therefore the country needs to maintain steady levels of production while developing new oil fields. This is in fact part of the contention on the dispute with Malta over the continental shelf delineation.

Europe and the Mediterranean
With limited domestic energy sources, Italy is highly dependent on imports to meet its consumption needs.
Oil consumption has remained relatively static since 1970, but oil has been steadily replaced by natural gas. A pressing issue affecting Italy has been keeping up with the demand for electricity, resulting in an increased share of electricity imports as a percent of total consumption.
Italy still relies upon oil for a sizable portion of electricity generation: preliminary International Energy Agency (IEA) data for 2005 shows that Italy relied upon oil for 16% of its electricity generation, versus 5% of OECD (Organisations for Economic Cooperation and Development) countries.
Spain’s energy demand has increased over 100% since the mid-1970s. The Iberian Peninsula has limited energy resources, so both Spain and Portugal must depend upon imports for the bulk of their energy needs.
France’s crude oil production peaked in the late 1980s at 67,000 bbl/d. The Paris and Aquitaine Basins contain the bulk of France’s production capacity. The largest producer of crude oil in France is Vermilion, which controls some 25% of the sector.
Despite its lack of domestic crude oil supplies, France is very active in international oil production. The French oil company Total SA is one of the world’s largest oil-producing companies.
According to Eurostat, France imported 1.57 million bbl/d of crude oil in 2006. The largest source of these imports was Norway (256,000 bbl/d), followed by Russia (186,000 bbl/d) and Saudi Arabia (166,000 bbl/d). France also imported 760,000 bbl/d of refined petroleum products in 2006, while exporting 519,000 bbl/d; the largest source of product imports were Russia, while the largest destination for exports was the Netherlands.
France is also the second-largest generator of nuclear energy, behind the United States. In the 1970s, the French government began promoting nuclear power to reduce its reliance on energy imports. In 2004, France’s nuclear reactors generated 425.8 Bkwh of electricity, or 79% of the national total. This represents a dramatic change from 1973, when fossil fuels accounted for an estimated 65% of French gross power output. French nuclear power is efficient and low cost, and French electricity tariffs are therefore the lowest in Europe.
Government-owned Areva controls all aspects of the nuclear power sector in France, including the mining of nuclear fuels, construction and operation of reactors, and the disposal of nuclear waste and decommissioned plants.

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