Estonia to Tap Fully Unused Oil Shale Output Quotas
Estonia to tap oil shale output quotas fully unused through 2009-2014
Estonia set to ramp up oil shale production after the country’s parliament has passed legislative amendments allowing to retroactively tap unused oil shale production quotas from the past seven years.
Behind only Brazil and China in oil shale global production, Estonia in 2008 set an annual quota of 20 million tons. However, the Baltic country with a population of 1.3 million, which makes it one of the least-populated member states of the European Union, has been able to use only around 70 percent of the given volume through 2009-2014, averaging 14.7 million tons per year throughout. Now Estonia eyes use of the remainder, roughly 24 million tons of oil shale.
With four Estonian companies: Eesti Energia Kaevandused, Viru Keemia Grupp Kaevandused, Kivioli Keemiatoostus, Kunda Nordic Tsement - all lined up for the work, Natural Gas Europe spoke with each of them about oil shale mining, the prospects and challenges it brings along.
Law will affect mining retroactively
Of the annual quota, currentlyat 20 million tons, 15 million tons belong to Eesti Energia, the key player in the Estonian hydrocarbons and power market, 2.77 million tons to Viru Keemia Grupp, the share of 1.98 million tons goes for Kivioli Keemiatoostus and Kunda Nordic Tsement was given 0.24 million tons.
The Riigikogu, Estonian Parliament, has passed the amendments to the Act on Amendments to the Estonian Earth’s Crust Act and the Environmental Charges Act in mid-June.
“They were initiated by representatives of four factions and the amendments are expected to allow the miners that have extracted oil shale less than the prescribed annual rate during seven years to extract the remaining oil shale retroactively,” Gunnar Pal, a representative of the Riigikogu, told Natural Gas Europe.
Kaarel Kuusk, the Eesti Energia Media Relations Manager, explained that Eesti Energia has used more than 85 percent of the mining limit allocated to the company in the past years. But as it has the potential of extracting up to 15 million tons of oil shale annually, the Estonian energy holdings is eagerly looking forward to the opportunities that the use of untapped quotas will provide.
The company produces ca 1,5 million barrels of shale oil annually and exports ca 70-80 percent of shale oil, mostly as marine fuel.
“We do not export oil shale itself, but products produced from oil shale…Shale oil and electricity will remain as the main products of our export. Our strategy is co-production of oil, gas and electricity from oil shale, we have developed a unique technology called Enefit (that is also how Eesti Energia is known beyond the Estonian borders), which allows us first extract oil from oil shale and then produce gas and electricity as byproducts of oil production. This doubles value of the oil shale we extract. Our first Enefit280 plant is expected to reach full capacity this year and we are planning to make an investment decision to construct another one next year,” the Eesti Energia official told Natural Gas Europe. He added: “Today, 70 percent of our revenues come from open markets, so the market influences the volumes that we produce.”
Eesti Energia is expected to add a 300 MW oil shale power plant to its line already next year.
“We are ready for the work,” says Kuusk.
Oil price drop trimmed profits
With the oil prices plummeting about 50 percent at the last year and the price of wholesale electricity on the Nordic power exchange Nord Pool Spot hitting historically low levels this half-year, the dips have been beneficial for consumers, insists Kuusk, but notes the situation for energy companies has been “complex.”
“In the current rather difficult conditions, flexibility is very important, and the strategy for the co-production of oil and electricity in Eesti Energia will give us just that what we need. The increase in the production capacity of liquid fuels allows us to produce energy from oil shale at a rate that is almost two times as efficient on the volatile energy markets,” Kuusk told.
The holding’s sales revenues have dropped insignificantly over the last years but EBITDA has grown. In 2014, Eesti Energia earned a net profit of 159 million euro, he says.
Eesti Energia also runs Narva power plants, which provide over 90 percent of the domestic power generation. The company, notably, has also made strides internationally, in Jordan and the United States, to be exact.
“In Jordan, Eesti Energia has a 65 percent share of company Attarat Power Company, which is developing a 554 MW oil shale power plant. We are finalizing financing procedures and first power should reach to consumers in 2018,” Kuusk told.
Eesti Energia also has access to 30,274 acres located in the US’s Utah.
“These lands contain an estimated 2.6 billion barrels of recoverable oil from oil shale. Since we purchased the project in 2011, we have been redeveloping the project, that involves permitting, geological studies, water supply study, mining study, engineering and etc,” he said.
The Eesti Energia strategy, Kuusk emphasizes, calls for the share of oil shale used by the oil industry to increase in the future and the share of electricity produced by direct burning of oil shale to be cut.
“We will produce an increasing share of electricity from retort gas, a by-product of shale oil production. Such combined production is both efficient and environmentally sustainable, as it allows us to increase the energetic value obtained from oil shale from the current 40 percent or so to nearly 70 percent,” Kuusk said.
Mine waste and the crushed stone produced from the excavation are used on cycle and pedestrian tracks, forest roads, road bases, squares and parking lots.
“The scale that the company addresses the environmental aspect of the production is overwhelming,” he notes.
Much emphasis on by-products
The transportation of mine waste and crushed stone is fairly expensive though and how much of it is used has so far directly depended on the road construction and other projects carried out in Ida-Virumaa County, Estonia.
The re-use of oil shale ash by the Estonian company has slowly increased over the past years.
“In 2009, we re-used 81,000 tons of ash and in 2014 we re-used 128,000 tons. Nearly 70 percent of the re-used ash is used in Estonia. Most of the ash from Eesti Energia is used in construction, where it is a component in the production of Portland cement,” the company official told.
Oil shale ash is also used in the production of ash blocks with the autoclave method. The use of ash as a construction material helps save non-renewable resources such as sand, limestone and gypsum, while increasing the value obtained from oil shale.
The use of retort gas, a by-product of shale oil, has also increased year by year. For example, 181 GWh of net electricity was generated from retort gas in 2009 and 254 GWh in 2014, the Estonian says.
“This type of combined production is efficient as well as environmentally sustainable – it allows nearly 30 percent more energetic value to be obtained from oil shale than in the direct production of electricity from oil shale,” he notes.
Reforestation has been the most widely used method of recultivation for opencast mines. Former opencast mines are continuously being reshaped in the smallest Baltic country and are now covered with forests ranging from 5 to 50 years of age.
“We have planted over 14,000 hectares of forest since 1960. This is almost the size of Tallinn, the Estonian capital,” Kuusk takes pride.
The former Kohtla underground mine was redone back in 2001 in a museum, which now offers the visitors, he says, “the deepest experience” in Estonia and the neighboring countries.
Oil price plummet tugged down shale oil price
In the past years, Kivioli Keemiatoostus, the other Estonian hydrocarbons miner, has increased the annual oil shale mining volume from 755 thousand tons in 2013 to 1058 thousand tons in 2014.
“For this year we plan to mine about 1500 thousand tons of oil shale. Out of the mined oil shale we have managed to refine shale oil for 56 thousand tons in 2013, 62 thousand tons in 2014 and we plan it for 76 thousand tons this year,” told Norbert Kaareste, the head of public relations for Alexela Group, which is a subsidiary is Kivioli Keemiatoostus (KKT).
The significant drop in oil prices has had a big impact on the company’s performance, with its owner Alexela Group’s biggest challenge in 2015 being to maintain the profitability of the company, he admits.
“The situation is direr, as the market price has at one point this year declined by 54 percent while the governmental taxes have risen 35 percent,” Kaareste, told Natural Gas Europe.
KKT owns about 10 percent of the Estonian oil shale market, with the gross output of the sector being 750 thousand tons, he pointed out.
“The current global oil price is definitely a challenge to Estonian shale oil companies, but we see that the market has become somewhat stable in the current price level - $60 USD per barrel - and we hope it can slowly grow from that level. Domestically we repeat the wish for a strong dialogue with the government, giving oil shale sector stability in governmental taxation and environmental principles,” Kaareste says.
Acting fast and adequately matters most
Viru Keemia Grupp AS, known as VKG, processed about 2.8 million tons of oil shale in 2013, and in 2014 the relevant amount made up about 3 million tons
According to Irina Bojenko, a VKG Public Relations representative, in 2013, ca 700,000 tons of shale oil was produced in Estonia with VKG’s share amounting to 400,000 tons, i.e. 60 percent. Last year the total amount of shale oil was ca 770, 000 tons, and VKG’s part was 433,000 tons, i.e. 57 percent.
VKG has only left unexcavated 6 million tons from the state-allotted quotas through 2009-2014.
“The changes in the legislation allow us extract post factum the reserve that was excavated in the amount less than the annual rate and provide both VKG and all of the other oil shale consumers. The legislation also obliges to pay the resource fee in advance if the company wants to extract the unused quota, i.e. the companies have to submit applications, proceeding from their actual production capacity,” Bojenko said.
“VKG operates within the entire oil shale processing chain, from the mining of oil shale to marketing fine chemicals. The main share of oil shale what is used in production is supplied by the company´s own Ojamaa mine with the reserve of 60 million tons. The output capacity of the mine corresponds to the limited amount specified in excavation permits which is currently 2.772 million tons per year, but it is possible to boost the output capacity within a short period of time to satisfying the increasing demand of oil plants,” Bojenko told Natural Gas Europe.
Because of the crisis in the oil market that broke out at the end of last year, the company, she admits, was forced to reduce production volumes down to the relevant level.
“In order to maintain efficiency and sustainability, the industry was forced to response fast and adequately, in the result of which two Kiviter oil plants, which belong to Viru Keemia Grupp, were closed down temporarily last December.
Estonia’s domestic energy potential is big
It saw 250 employees cut from the payroll and the state budget lost about 15 million euro as a result.
The crisis has also affected the company’s bottom line: VKG earned about 10 million euro in net profit last year, while in the year before last the relevant amount was almost 20 million euro. The turnover, meanwhile, has decreased by 11 percent, or 194.5 million euro.
VKG’s oil shale share of the market is ca. 17 percent, but the Group has larger mining capacity, Bojenko says.
“That is why we have to buy part of the missing raw material from state-owned Eesti Energia. Last month parliament made a change in mining law which gives us a possibility to expand our own mine and start mining in a full scale,” she pointed out.
“As the improvement of the entire oil shale value chain is an extremely promising field of development, which would allow one to use the resources more efficiently, with that in mind, VKG in 2014 has built the pilot equipment for liquefying the oil shale gas, and a series of successful tests was held.
“On the basis of the results of the tests, a technological solution was developed for the purposes of the industrial application, and the relevant stepwise investment plan for the next few years was prepared,” she underlined.
The VKG official notes that there high taxes for oil shale production companies in Estonia.
“Although we have zero incorporate income tax, we, however, have high labor, environmental, excise taxes etc. We expect more stable tax system from the government,” Bojenko pointed out.
The hydrocarbons potential, she insists, cannot be overlooked, and moreover: VKG, as the other miners, believe Estonia has potential to secure 100 percent of the necessary energy supply from oil shale over the next ten years.
“We do believe that it is possible. It is a fact that today Estonia is the only one of the two countries in Europe, which exports more energy than consumes,” she told.
VKG exports its technologies to China, Jordan and Russia, but the company had to freeze its hydrocarbons project in Ukraine due to the unstable political situation.
Concerned about ever rising mining fee
Meelis Einstein, of Kunda Nordic Tsement, the fourth in the line of the Estonian oil shale producers, told Natural Gas Europe the company’s oil shale production has been about 100 – 150 kt/a, or some 1 percent of the market.
"The State of Estonia is increasing the mining fee year by year and that pushes the oil shale price more than normal the inflation rate, which will harm the oil shale industry in long term,” he explained.
The smallest Estonian oil shale miner, Kunda Nordic Tsement, might be the most vulnerable, but it is set to hold the grip of the lucrative hydrocarbons market.