VKG suspended the operations of one of its Kiviter* technology shale oil plants in March, albeit a relatively small production unit which processed oil shale purchased from Eesti Energia. 

VKG's remaining production units are still in operation at full tilt, the company says.

"At the moment we are working at full capacity," VKG chair Ahti Asmann said.

Constant monitoring

"Of course, the current world market price of oil and the world market price of oil products are not sufficient to cover production costs, but we are currently continuing to produce at full capacity, and cover the interim component from our financial reserves," Asmaan added.

"We are constantly monitoring what is happening on the market, and we are evaluating the capacity of our company. We can work off our reserve base for a while, but when we evaluate that the time has come .... We must not question the sustainability of the company. Today no 'It is difficult to give a long-term plan'. We are monitoring the changes on the market on a daily basis. Based on these, we make decisions on when and what to do. But at the moment we are still working at full pace," he added.

Eesti Energia

Eesti Energia similarly does not plan to close its oil production operations. 

"A large part of our production this year and next year has been sold through hedging transactions at a fixed price, which is significantly higher than the current world market price, and it offers relief in a difficult market situation," said Eesti Energia spokesperson Priit Luts.

"We have no plans to halt oil production at the moment. However, a standstill in oil production cannot be ruled out if the situation continues to remain similar to the current situation for any length of time. But as of now this is definitely not the case."

Eesti Energia using downtime for planned maintenance

Eesti Energia has nonetheless now reduced its oil shale production, starting planned maintenance of one oil plant earlier than scheduled.

"We brought forward the regular maintenance of the Enefit 280 oil plant - half of our production capacity - ahead of schedule. The plant is in maintenance from the last week of March and the current plan is to start working again on Thursday. In addition, one older Enefit 140 oil plant and postpone deliveries," said Luts.

World oil prices slump

The recent, sharp fall in world oil prices resulting from falling demand has also led to a drop in the price of fuel oil with a 1 percent sulfur content, the reference product of shale oil on the world market. 

At the beginning of the year, fuel oil in Rotterdam cost just under US$600 a tonne, but has since then dropped to 25 percent of that, at US$150 per tonne at the time of writing.

VKG suggests reducing excise rate on fuel it uses off-road

Both VKG and Eesti Energia note that, in essence, the current situation is both unpredictable and a consequence of the coronavirus crisis. 

Similarly, the progress of fuel production and consumption and the impact of the health crisis on the world economy are unpredictable.

VKG says it sees one temporary option for compensating for the temporary drop in oil prices using state support, more specifically by a more favorable tax and excise regime, which the company says would save it a couple of million euros in its annual tax bill. 

This would involve using specially marked diesel fuel at a lower rate of excise duty, similar to that sold to the agricultural sector, which could fuel mining plant which that never runs on any public road. 

Second, Asman said the deposit fee for oil shale ash could be lowered to the rate of the deposit fee for other slag, since it is an inert substance, he said.

Shale oil output rose on year to 2019

Last year, 1.1 million tons of shale oil was produced in Estonia, 8.7 percent more than in 2018.

Of this, 607,00 tonnes was produced by VKG, 410,000 tons by Eesti Energia, with Alexela-owned Kiviõli Keemiatööstus producing the remaining 92,000 tons.

As in previous years, more than 90 percent of production was sold abroad. 

Shale oil is used in the chemical industry as a raw material, in plastics, in heating boilers and industrial furnaces, as an additive to marine fuels and in other applications.

The International Energy Agency (IEA) forecast in April that at the trough of the current crisis, oil demand would fall by up to 30 percent, but should return to pre-crisis levels by the end of the year and even start growing again from the new year.

"A recovery in demand is also a precondition for a gradual rise in oil prices. Therefore, our plans to increase oil production have not changed over the long run, because changes in the oil market are a short-term phenomenon; demand for oil will increase in the long run," said Eesti Energia's Priit Luts.

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