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Domestic market overview

Production

What is the extent of oil and gas production in your jurisdiction?

At present there is no production of oil and gas in Malta.

Consumption

How does domestic energy consumption break down with respect to oil and gas, as well as imports and exports?

According to the Energy and Water Agency, Malta’s energy consumption for 2017 can be broken down approximately as follows:

  • 70% natural gas;
  • 24% imported electricity through the Malta-Sicily interconnector; and
  • 6% renewable energy.

Trends

What are the current trends and future prospects for oil and gas supply and demand in your jurisdiction, and what policies has the government adopted to address these?

In 2017 Malta switched its primary source of energy from heavy fuel oil to natural gas. This change was brought about by the recent construction of a 215 megawatt combined-cycle gas turbine (CCGT) plant, as well as the facilities required for the receiving, storage and regasification of liquefied natural gas (LNG). The latter is stored in a receiving and storage facility consisting of a floating storage unit from where gas is fed to both the CCGT plant and to the newly installed diesel engine combined-cycle plant via a regasification unit. With this change in power generation and the decommissioning of older power plants, Malta is now no longer dependent on heavy fuel oil and uses cleaner and more cost-effective fuel for electricity generation.

At present, natural gas makes up approximately 70% of Malta’s energy mix, with the remainder coming from renewable energy and electricity imported through Malta’s interconnector cable with Sicily.

As for future prospects, the government intends to implement a gas connection to the European natural gas network and has recently issued a public call for tenders for the construction of a Malta-Italy gas pipeline, with a supply capacity of 232,000 standard cubic metres per hour, between Gela in Sicily and Delimara in Malta.

The government has additionally embarked on a new study to determine the technical feasibility and cost analysis of introducing LNG as a marine fuel, replacing heavy fuel oil and marine gas oil.

Regulatory overview

Regulation

What are the primary laws and regulations governing the oil and gas industry in your jurisdiction?

The principal laws governing oil and gas activities are the following;

  • the Petroleum (Production) Act (Chapter 156 of the Laws of Malta);
  • the Petroleum (Production) Regulations (Subsidiary Legislation 156.01);
  • the Offshore Safety (Oil and Gas) Regulations (Subsidiary Legislation 156.02);
  • the Continental Shelf Regulations (Subsidiary Legislation 535.02);
  • the Natural Gas Market Regulations (Subsidiary Legislation 545.12); and
  • the Petroleum for the Inland (Wholesale) Fuel Market, Bottling of LPG and Primary Storage Facilities Regulations (Subsidiary Legislation 545.17)

Which government bodies regulate the oil and gas industry and what is the extent of their powers?

The authority to grant oil and gas rights and to regulate oil and gas exploration and production rests with the prime minister.

The regulation of all other energy resources-related activities falls within the remit of the Regulator for Energy and Water Services. Save for exploration and production activity, no energy-related activities can be carried out in Malta without the regulator’s authorisation.

The main functions of the regulator include:

  • regulating and monitoring all energy practices and operations;
  • licensing energy-related activities;
  • securing interconnectivity for the production, transmission and distribution of energy services and products;
  • regulating price mechanisms for the production, sale, storage and distribution of energy products; and
  • safeguarding the interests of consumers.

Matters relating to the safety of offshore oil and gas operations are regulated by both the government and the Offshore Safety (Oil and Gas) Board.

Exploration and production

Rights

Who holds the rights to oil and gas reserves in your jurisdiction?

The property rights in petroleum (including crude oil and natural gas) in its natural condition in strata, wheresoever existing in Malta, is vested in the government. The government has exclusive exploration and exploitation rights with respect to natural resources offshore.

Is there a distinction between surface and sub-surface rights?

There is no such distinction under Maltese law.

What rules and procedures govern the grant of rights for exploration and production purposes (eg, through licences, leases, concessions, service contracts, production sharing agreements)?

The prime minister has the power to grant:

  • authorisations to search, bore for and obtain oil and gas on, under or from any lands in Malta; and
  • petroleum mining concessions.

Under the Petroleum (Production) Act, only limited liability companies established in Malta and similar bodies corporate established outside Malta can apply for a production or exploration licence. Applications for exploration or production licences are usually submitted by interested parties following a public call for applications issued by the prime minister. However, the government has more recently adopted an open-door policy with respect to licence applications.

An application for such licence must be made in writing using the standard form attached to the relevant regulations and addressed directly to the prime minister. The application must be accompanied by the appropriate fee along with any information or evidence required by the regulations (eg, evidence of the applicant’s financial capability).

Licences are granted for a consideration (by way of royalty or otherwise) which is determined on a case-by-case basis by the prime minister, and over such areas, for such periods and on such other terms and conditions as are stipulated in the call for applications. The licence will also include terms and conditions relating to:

  • the rate of royalties to be paid;
  • the surface rents charged in respect of the area;
  • the division between government and licensee of profits derived from the sale or disposal of the petroleum; and
  • any other terms specified in the call for applications.

All exploration and production licences must incorporate the model clauses respectively set out in the Model Exploration Study Agreement and the Model Production Sharing Contract, copies of which may be obtained on request by any interested party from the Oil Exploration Department within the Office of the Prime Minister. These clauses regulate matters such as production sharing, cost recovery and taxation.

What criteria are considered in awarding exploration and production rights (eg, are there any restrictions on the participation of foreign investors/companies)?

The grant of a licence is subject to the applicant satisfying various technical and financial criteria. It also depends on the applicant’s proposed methodology for the exploration or production of petroleum and the manner in which the applicant intends to perform such activities.

The law permits companies and similar corporate bodies, whether established within or outside Malta, to apply for such licences.

Joint ventures

Do any special legal provisions apply to joint ventures?

There are no specific legal provisions or requirements relating to joint ventures.

Third parties

Can exploration and production rights be transferred to third parties?

A licence holder may assign its rights and obligations to an affiliated entity and, on prior consent of the government, to third parties.

Fracking

Is hydraulic fracturing (‘fracking’) permitted in your jurisdiction?

No law expressly prohibits fracking in Malta.

Transport and storage

Legal framework

What rules and procedures govern the transportation and storage of oil and gas resources in your jurisdiction?

Transportation and storage of oil and gas are almost entirely regulated by the Regulator for Energy and Water Services, whose authorisation is required for the carrying out of such activities. In particular, the regulator is responsible for establishing the procedure for granting authorisations for the operation of pipelines and storage facilities, and for monitoring and reviewing third-party access conditions to oil and gas infrastructure.

Transportation

How is cross-border transportation of oil and gas resources regulated?

Cross-border transportation of oil and gas is regulated to a limited extent under Maltese law. Malta has no oil and gas pipelines at present and tanker vessels are therefore the only means of transportation for the importation of oil and gas in Malta.

From a licencing perspective, any person seeking to carry out the activity of an importer of petroleum requires authorisation from the Regulator for Energy and Water Services under the Petroleum for the Inland (Wholesale) Fuel Market, Bottling of Liquefied Petroleum Gas and Primary Storage Facilities Regulations. For purposes of these regulations the term ‘petroleum’ includes all hydrocarbons, whether liquid or gaseous, including natural gas and crude oil.

Are there specific provisions governing marine and ground transportation of oil and gas resources?

With respect to marine transportation, the Petroleum (Importation, Storage, and Sale) Ordinance requires the agent of a ship carrying cargo consisting in whole or in part of petroleum to give the Authority for Transport in Malta at least three days’ prior notice of its arrival and to report the nature and particulars of the cargo. In addition, on the order of the Comptroller of Customs a sample of the cargo on board the vessel may be extracted for testing.

From a safety perspective, the Authority for Transport in Malta has put in place various regulations governing the marine transportation of dangerous cargo (including petroleum products), bunkering operations and other activities involving the handling of petroleum.

Ground transportation of oil and gas is mainly regulated by the Motor Vehicles (Carriage of Dangerous Good by Roads) Regulations. For purposes of these regulations, petroleum products (including both natural gas and crude oil) are classified as dangerous goods and accordingly any vehicle transporting such products must adhere to the requirements laid down in the regulations. These requirements include appropriate marking of the vehicle and the provision of fire-fighting equipment.

Construction and infrastructure

How are the construction and operation of pipelines, storage facilities and related infrastructure regulated?

Authorisation from the Malta Planning Authority is required for the construction of all developments, whether on land or sea. Thus, any person seeking to construct pipelines, storage facilities or other oil and gas infrastructure would require a development permit from the authority.

The permitting process may involve the execution of various studies – most importantly, the environmental impact assessments which are required under the Environment and Resources Authority Act. The length of the permitting process ranges from three months to one year, depending on the studies and assessments required. Developments requiring full environmental impact assessments will generally take longer.

With respect to storage facilities, the Petroleum for the Inland (Wholesale) Fuel Market, Bottling of Liquefied Petroleum Gas and Primary Storage Facilities Regulations require that all petroleum storage facilities, whether onshore or offshore, are designed and constructed in accordance with specific standards and safety requirements as may be prescribed by the Regulator for Energy and Water Services or another competent authority. For purposes of these regulations, ‘petroleum’ includes all hydrocarbons, whether liquid or gaseous, including natural gas and crude oil.

The laying of submarine cables and pipelines on Malta’s continental shelf requires a licence from the prime minister in addition to the development permit. Likewise, no artificial island, installation or structure may be constructed on the continental shelf without a licence from the prime minister.

Regarding operations, authorisation from the regulator is required for the operation of a pipeline or petroleum storage facility. The regulator can suspend or revoke any authorisation in case of a breach of licence conditions or failure to abide by any directive issued by the regulator. An authorised operator must, among other things, keep detailed records of all its petroleum activities and maintain adequate insurance policies relevant to its activities and operations.

Another type of operating permit (namely, an integrated pollution prevention and control permit) may also be required from the Environment and Resources Authority for the operation of specific installations, including storage facilities. This permit must be obtained by the operator of the installation prior to commencement of operations.

What rules govern third-party access to pipelines and related infrastructure?

At present, Malta has no pipelines and therefore no specific regulation concerning third-party access to oil and gas pipelines. At present, the only rules governing third-party access with respect to oil and gas infrastructure relate to liquefied natural gas facilities – specifically, storage facilities. These rules are set out in the Natural Gas Market Regulations.

Trading and distribution

Regulation

How are oil and gas resources traded in your jurisdiction and what (if any) regulations and procedures apply to oil and gas sales, distribution and marketing activities, both nationally and internationally?

At present there is no market for oil and gas resources in Malta and thus no trading of these resources.

Is oil and gas pricing regulated in your jurisdiction?

No.

Occupational health and safety and labour issues

Health and safety

What health and safety regulations and procedures apply to oil and gas operations (upstream, midstream and downstream)?

All aspects of oil and gas operations are covered by occupational health and safety law and regulations, which outline a wide range of requirements and standards, including proper use of machinery and equipment, personal protective equipment and hazardous materials. Specific to oil and gas operations, the Protection of Workers in the Mineral Extracting Industries through Drilling and Workers in Surface and Underground Mineral Extracting Industries Regulations contain requirements applicable to:

  • the onshore and offshore sectors of the mineral-extracting industries through drilling;
  • the surface and underground mineral-extracting industries; and
  • ancillary surface installations.

These regulations place specific obligations on the employer with respect to:

  • routine medical examinations for employees;
  • the provision of means of escape in case of fire or explosion;
  • the establishment of warning and alarm signals; and
  • routine training and instruction.

With respect to offshore oil and gas operations, licence holders must comply with the Offshore Safety (Oil and Gas) Regulations, which require them to submit to the Offshore Safety (Oil and Gas) Board:

  • a major accident prevention policy;
  • a safety and environmental management system applicable to the installation; and
  • an internal emergency response plan.

External emergency response plans covering all offshore oil and gas installations and potentially affected areas are dealt with under the Offshore (Oil and Gas) External Emergency Response Regulations (Subsidiary Legislation 499.64). These plans are prepared by the Maritime Safety and Pollution Prevention Committee.

Labour law

Are there any labour law provisions with specific relevance to the oil and gas industry (eg, with regard to use of native and foreign personnel)?

Although there are no labour laws specific to the oil and gas industry, the Paper, Plastics, Chemicals and Petroleum Wages Council Wage Regulation Order sets out the minimum working conditions for employees carrying out activities relating to the extraction, preparation and processing of petroleum products. The order sets out:

  • minimum working hours;
  • minimum wages payable for full-time employees;
  • rates for overtime;
  • minimum weekly rests;
  • sick and vacation leave; and
  • age of retirement.

What is the state of collective bargaining/organised labour in the oil and gas industry?

Although collective bargaining agreements are recognised and accepted under Maltese law, they are confidential in nature and it is therefore unknown whether workers in the oil and gas industry have entered into such agreements.

Environmental protection

Authorisation

What preliminary environmental authorisations are required before commencing oil and gas-related activities?

The environmental authorisations required for oil and gas-related activities will largely depend on the type of activity being carried out and the area in which it is carried out. An integrated pollution prevention and control permit, which is an operating permit issued by the Environment and Resources Authority, and which controls the release of harmful emissions into the air, water and soil, may be required for certain oil and gas-related activities. Additionally, as part of the permitting process for the construction of oil and gas facilities, comprehensive environmental impact assessments may be required.

Regarding offshore activities, the government of Malta will grant a licence for oil and gas activities only where it is satisfied that the licensee has the financial capacity to cover liabilities which may potentially arise from the licensed activities – specifically, the environmental damage which might be caused. Additionally, prior to commencing operations, the licensee must prepare and submit to the Offshore Safety (Oil and Gas) Board a report detailing the safety and environmental management system of the installation. The licensee must also submit a report on major hazards which must contain, among other things, a description of the equipment and arrangements to ensure:

  • containment of hazardous substances;
  • prevention of fire and explosion;
  • protection of the workers from hazardous substances; and
  • protection of the environment from a major accident.

The report must also include an assessment of the identified potential environmental effects that would result from the loss of containment of pollutants arising from a major accident, and a description of the technical and non-technical measures envisaged to prevent, reduce or offset them, including monitoring.

Requirements

What environmental protection requirements apply to the operation of oil and gas facilities?

General environmental protection laws regulating the discharge of emissions and pollutants into the air and the marine environment apply to oil and gas activities. Waste laws regulating the disposal of harmful substances also apply to such activities. The operation of certain oil and gas installations might also require an integrated pollution prevention and control permit, which would impose a number of additional monitoring and reporting obligations on the operator.

Apart from the above, the Prevention and Remedying of Environmental Damage Regulations (Subsidiary Legislation 549.97) also apply to oil and gas activities. These regulations require an operator or licensee to take all necessary preventative measures in the event of an imminent threat of environmental damage. Where environmental damage has occurred, the operator must inform the competent authority immediately of the situation and take all steps necessary to control, contain and remove or otherwise manage the contamination or other harm caused.

Breach

What are the consequences of failure to observe the relevant environmental regulations and to what extent can operators be held liable for environmental damage?

Violations of environmental laws and regulations may lead to both civil and criminal penalties. Violations occurring during the development of a project can result in the suspension of development activities until the environmental harm is remedied. Violations which occur during operation may result in the suspension or revocation of the permit or authorisation.

In terms of the Prevention and Remedying of Environmental Damage Regulations, an operator may be held liable for the full costs of remedying the environmental harm caused through its activities. The operator would also be required to reimburse the competent authorities (including emergency responders) for the costs incurred in taking remedial action and responding to the harm.

Taxes and royalties

Taxes

What taxes (direct and indirect) and/or royalties apply to oil and gas activities in your jurisdiction (upstream, midstream and downstream)?

The Income Tax Act (Chapter 123 of the Laws of Malta) provides that the exploration and production of petroleum (including crude oil, natural gas and other hydrocarbons and substances that may be extracted therefrom) in Malta is carried out through a production sharing contract executed between the government and the licensee. The profits derived from such activities are chargeable to income tax at the flat rate of 35%.

Under the Value Added Tax Act (Chapter 406 of the Laws of Malta), oil and gas activities fall within the scope of value added tax (VAT), which is generally charged on the supply of goods and services that takes place in Malta by a taxable person acting as such. In the context of the supply of oil and gas (which is treated as a supply of goods), this is subject to the standard VAT rate of 18%. However, the importation of gas through a natural gas system or any network connected to such a system or fed in from a vessel transporting gas into a natural gas system or any upstream pipeline network is exempt from VAT.

Royalties are regulated on a case-by-case basis under the production sharing contract executed between the government and the licensee.

Imports and exports

What taxes and duties apply to oil and gas imports and exports?

The Import Duties Act (Chapter 337 of the Laws of Malta) provides that petroleum oils and oils obtained from bituminous minerals (ie, crude) are exempt from import duty.

Gases are treated in a varied manner from an import duty standpoint, depending on their content and purpose. Certain gases are exempt (eg, coal gas and water gas), whereas other forms of gases are subject to duty varying from 1.5% (for natural gas) to 8%.

Decommissioning

Regulation

How is the decommissioning of oil and gas facilities regulated?

The decommissioning and removal of offshore oil and gas installations and connected infrastructure are regulated by the Offshore Safety (Oil and Gas) Regulations (Subsidiary Legislation 156.02). Prior to the removal of an installation, the operator must submit a report to the competent authority containing:

  • the means of isolating all hazardous substances and, in the case of wells connected to the installation, the permanent sealing of the wells from the installation and the environment;
  • a description of:
    • major hazard risks to workers and the environment associated with the decommissioning of the installation;
    • the total exposed population; and
    • the risk control measures; and
  • emergency response arrangements to secure safe evacuation and rescue of personnel and to maintain control systems for preventing a major environmental accident.

 The decommissioning of onshore oil and gas facilities is not specifically regulated under Maltese law.

Dispute resolution

Disputes

How are oil and gas disputes typically resolved in your jurisdiction?

Given the lack of development in oil and gas activity in Malta, there is no typical method of resolution. However, there are various avenues which parties could use to resolve disputes under Maltese law, ranging from mediation to court adjudication.

Anti-corruption measures

Dishonest practices

What regulations and procedures are in place to combat bribery, fraud, collusion and other dishonest practices in the oil and gas sector in your jurisdiction?

There is no specific law on the combating of bribery, fraud, collusion and dishonest practices in relation to oil and gas activities in Malta. However, the general laws relating to bribery, fraud and corruption would nevertheless apply. The Criminal Code (Chapter 9 of the Laws of Malta) criminalises all types of abuse by public officials, including bribery, fraud, extortion and public exaction.