Is This Europe’s Newest Oil & Gas Hotspot?

Is This Europe’s Newest Oil & Gas Hotspot?

Tyler Durden

Tue, 10/20/2020 – 03:30

Authored by Viktor Katuna via OilPrice.com,

When Michelangelo Merisi (also known as Caravaggio) left continental Italy for Malta in 1607 to escape the ramifications of a lethal sword fight, little did he know what a profound impact he would leave on the little Mediterranean island. For Michelangelo himself the impact was questionable at best – apart from painting some of his most profound works there (such as the Beheading of Saint John the Baptist), he became a Maltese Knight only to be banished from Malta a year later for being a “foul and rotten member”. In brief, Caravaggio’s one-year sojourn has only perpetuated all the problems the artist had been suffering from. Yet for the island nation of Malta, Caravaggio has become a showcase to spearhead all its remarkable achievements.

No wonder one of the Mediterranean’s most ambitious oil-drilling projects assumed Caravaggio’s name.  

Caravaggio is a heretofore undrilled prospect offshore Malta, lying in water depths of 350 metres within Area 07. According to preliminary assessments based on seismic surveys the main target for Caravaggio is a Lower Eocene carbonate reef and a secondary reef below that, the aggregate reserves of which might be 1 Bboe. The operator of Area 07, Heritage Oil, was awarded the rights to it in December 2007 along with Area 02 and was supposed to conduct at least 1000km seismic surveying (the blocks cover 8778km2 and 9190km2 respectively) and drill one exploration well. The latter objective could not be met, however now Heritage has some solid 5000km of seismic surveying data, reportedly attesting to the presence of several prospects to be drilled.

The reason why Caravaggio was still not drilled is fairly straightforward – absent any demarcation within the Malta-Italy-Libya maritime triangle, it simply cannot be if the area’s operator is to stick to the international norms of maritime law. The lack of political settlement also seems to be the underlying reason why Heritage Oil is reportedly looking to farm out some of its Area 02 and 07 stakes. Cognizant of the international ramifications, the Maltese government seems to be unwilling to issue the required exploration well permit, meaning that even if tomorrow brought about a swift resolution of the maritime border dispute (the GNA Foreign Minister Mohamed Taha Siala has visited Malta with the issue on his agenda), the project would still need to go through the full approval procedure.

Seemingly the easiest element of the problem would be to find common ground with Italy, a nation historically knit to Malta by ties of friendship. This has already been suggested by the Maltese government, among others in 2012 yet seemingly triggered no noteworthy reaction from the Italian side. Thus, the stale state of the Central Mediterranean is in stark contrast to the Eastern Mediterranean where large gas discoveries offshore Egypt, Israel and Cyprus have started off a large-scale kerfuffle over delimitation rights. The task is somewhat aggravated by the fact that both Malta and Italy depend on tourism for a sizeable share of their income and have been working to nudge offshore exploration farther offshore (according to a 2012 Italian E&P decree all drilling within the 12-nautical mile territorial sea is banned). 

Yet even if Italy and Malta were to settle all past grievances and delimit their maritime zones, this would not be enough for Caravaggio drilling to happen – the prospect is located in the immediate vicinity of the assumed Maltese-Libyan maritime border, hence might be claimed by both sides. Malta and Libya (back in the Jamahiriya days of Colonel Gaddafi) took the maritime dispute to the International Court of Justice in 1984-1985, not asking for a suggested line of demarcation but rather to decide on what principles could the two sides base the potential prospective agreement. The ICJ did in fact provide a suggested delimitation line, smiting Libya’s demands that the Maltese exclusive economic zone be curbed by the geological limits of its rift zone, i.e. the discontinuity of the troughs to the south of Malta. For reasons beyond obvious, the 1985 ICJ decision was never followed upon.  

Although the Caravaggio prospect is located to the east of Libya’s two currently producing offshore fields, Bouri and Al Jurf, Libya’s offshore Pelagian Basin might provide the most suitable reference frame for Malta’s offshore potential. According to a recent USGS assessment, the Pelagian Basin has a total undiscovered resource tally of some 2 Bbbls crude and 37.55 TCf of natural gas, confirming a past assumption that gas occurrence in the offshore area would be higher than onshore – set against the total undiscovered resources of the Sirte-Pelagian Basin, offshore crude makes up a mere 12% of the aggregate, whilst offshore natural gas amounts to more than a third. 

Considering that Malta produces no oil and gas at all, a future gas discovery would be very convenient for the small island nation. Currently, Malta is utilizing predominantly natural gas to generate electricity (70% of its energy consumption), its basis being a 10-year LNG supply contract with SOCAR. According to Maltese media reports, for the 5 years the purchase price was fixed at $11.50 per MMbtu, making Malta one of the most profitable Mediterranean LNG outlets ever. Producing some gas of its own could alleviate Malta’s necessity to buy overpriced imports. Malta never had an oil refinery and has historically depended on Italy to provide its products and its name reverberated quite frequently in stories relating to oil smuggling activities out of Libya.

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Author: Tyler Durden

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