EU door to gas pipeline finance is shut, despite hydrogen-ready changes to plan

Changed proposals for a hydrogen-ready pipeline lacked “justification to what extent [it] would actually be used for renewable gases”

The European Commission has shut the door to any funding for Malta’s gas pipeline, after informing the government that its proposal for a “hydrogen-ready” pipeline fell short of a sufficient justification.

In correspondence obtained through an EU freedom of information request, the EC’s Innovation and Networks Executive Agency told Malta that its attempt to finance a €400 million pipeline with an H2-ready design lacked “justification to what extent [it] would actually be used for renewable gases”.

A senior government source said the EC’s decision meant there will be no EU money to pay for the pipeline, and that now the government will consider some form of private financing, among other options, for the project to replace the LNG tanker in Delimara Bay.

An EU source confirmed that there was little to no chance that Malta would be able to get any form of EU cash for the gas pipeline project, despite its importance for Malta’s security of supply.

In a letter to Melita Transgas, the government company responsible for the design and construction of the pipeline, INEA said that Malta’s H2-ready design “cannot be considered innovative as the technology is available on the market and can therefore not be considered as a positive externality.”

Malta had already failed to obtain financing in 2019 from the Connecting Europe Facility (CEF) funds due to the Commission’s de-prioritisation of gas projects in its bid to move fast on climate change targets. 

In 2020 it proposed to have the gas pipeline be able to procure hydrogen in a bid to placate EC decision-makers, but its proposal did not provide a detailed assessment of alternative options for renewable gases and other decarbonisation objectives.

Malta had planned to procure natural gas from the European mainland instead of the floating liquefied natural gas (LNG) vessel in Delimara.

But the EC claims that the Maltese proposal did not sufficiently substantiate the claim that a gas pipeline can improve security of supply or a more competitive gas supply in Malta. “The expected impact on security of supply beyond Malta appears.. marginal. The rationale behind the switch from LNG to pipeline gas should have been explained more in detail, also due to the uncertainty concerning future price developments. The H2 ready design cannot be considered innovative as the technology is available on the market and can therefore not be considered as a positive externality.”

The senior government source said Malta will still tap into available funding for other energy projects, but that the pipeline project will have to be paid for through other forms of funding, including tapping into private market sources.

Malta’s bid for an EU-funded gas pipeline was overshadowed by a European Ombudsman’s inquiry on the gas projects that were included in the 2019 list of PCIs (projects of common interest) – Malta’s included. The European Commission had admitted that its sustainability assessment of candidate gas projects had been “suboptimal due to a lack of data” – under a proposed reform, the EC has now ruled out unabated gas projects from applying for funding completely. 

This means that billions in CEF cash will only be spent on renewable and low carbon gases, such as smart gas grids, and green gases, typically biogas and biomethane, but also hydrogen transmission pipelines and related equipment.

Malta’s 159-km natural gas pipeline between Gela, Sicily and Malta was expected to be operational by 2024. It has been a high priority in the ongoing effort to link Malta to Europe’s energy network, and will end Malta’s “gas isolation”. In 2020, the government modified its pipeline project in the hope of winning the EC’s favour by proposing a hydrogen-ready pipeline.

Malta’s electrical network was linked to Europe’s via Sicily in 2015, but remaining on the periphery from the EU’s natural gas networks affected the security of Malta’s energy supply. 

This pipeline would help Malta cut emissions from shipping, as the aim is to slash emissions by at least 50% by 2050.