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Shale oil producer VKG reports 75 percent fall in profits for 2020

A VKG power station in Ida-Viru County.
A VKG power station in Ida-Viru County. Source: Rene Kundla/ERR

One of the three major oil shale producers in Estonia, Viru Keemia Grupp (VKG), reported a 75 percent fall in profit for 2020. The sector, a major employer in Ida-Viru County, is being transitioned out of in the coming decades, principally to meet European Union climate change goals.

VKG's profit was €8.9 million in 2020, the company says, as noted 75 percent down on year, while revenues also fell – by 19 percent – to €208 million, BNS reports.

The company says that despite this, the slump in oil prices in the early part of 2020, and the coronavirus pandemic, which also led to reduced demand for electricity – often generated by power stations which burn shale oil – the company remained competitive and did not need to seek state aid.

The average world price of fuel oil with 1 percent sulfur content, i.e. the reference product of VKG shale oils, stood at €235 per tonne in 2020, a fall of 32 percent, BNS reports.

VKG CFO speaks up in favor of previous government's policies

VKG CFO Jaanis Sepp said that both his company and government policy had staved off worse economic effects.

Sepp said: "When market prices are at a level where we see more than €100,000 in losses every day, then the commercially correct decision would be to stop production. This time, we managed to find ways to save both costs and investments and avoid stopping production and laying off people."

"Additional support was given by the previous government's right decisions at the deepest point of the crisis to correct the hitherto unfair tax policy," Sepp added, via a press release.

The group's oil production units processed approximately 4.8 million tonnes of oil shale during the year, a fall of 5.5 percent on year, one which translated to 629,000 tons of shale oil products, again a fall – of 4.5 percent – between 2019 and 2020.

Most of VKG output is exported

VKG says the drop in production, of 30,000 tonnes, resulted from the company abandoning the valorization of expensively-purchased oil shale ("valorization" refers to an increase in the value of capital assets via the application of value-forming labour during production -ed.), in other words accounting considerations.

Of manufactured goods, the largest proportionate drop came with coke, at 36 percent, as both demand and price decreased.

At the same time, VKG says the market for phenolic products (referring to phenols, a class of chemical -ed.) and fine chemicals bucked the trend, particularly in the latter case, which saw 55 percent growth.

VKG exported 95 percent of its output, the company says.

Similarly, electricity production arising from VKG's shale oil fell, by 5.9 percent, to 446 GWh, or around 10 percent of all electricity generated in Estonia, and 6 percent of that consumed, in 2020.

Mild winter had an effect, as did pandemic

A mild winter also contributed to the fall, while heat energy sales – another by-product which involves hot water produced at power stations being piped to nearby towns to heat apartment houses – fell by 6.8 percent, to 248 Gwh, VKG says.

VKG also curbed its investments by 53 percent, to €14.2 million, which it put mainly into environmental projects and to make efficiency gains, the company says.

VKG continued €36.3 million to the state budget in 2020, principally via labor taxes (€18.8 million) and environmental charges (€9.7 million).

The company employed 1,650 people last year, and says it did not need to take advantage of the government's wage support scheme first issued during the spring coronavirus wave.

The other two major oil shale producers in Estonia are  Kiviõli Keemiatööstus (part of the Alexela Group) and state-owned energy firm Eesti Energia.


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Editor: Andrew Whyte

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