One-third of district heating gas can be replaced by shale oil

Loading of shale oil.
Loading of shale oil. Source: Rene Kundla/ERR

Due to Russia's war in Ukraine, the gas shortage in the region, and the availability of shale oil in Estonia, it is possible to replace nearly a terawatt-hour (TWh) of gas with shale oil in the district heating sector this winter. This will reduce Estonia's district heating gas consumption by about one-third.

The annual gas usage in Estonia is declining. In 2008, Estonia consumed more than 10 TWh of natural gas and by 2020, that number had dropped to 4.5 TWh. In a situation where Estonia no longer buys gas from Russia and regional LNG capacity is still limited, gas consumption will continue to fall.

During the new government's first press conference, Riina Sikkut (SDE), the new minister of economic affairs and infrastructure, said without state intervention, gas consumption could fall by nearly 20 percent this year. Prime Minister Kaja Kallas (Reform) said that this year's gas consumption could be about 4 TWh.

Timo Tatar, deputy secretary general for energy at the Ministry of Economic Affairs, said the ministry estimates it should be possible to replace one TWh of gas with shale oil in the Estonian district heating sector during this heating season.

This would be roughly a quarter of Estonia's total gas consumption or one-third of the gas used for district heating in a single heating season.

This is not to imply that shale oil could replace gas everywhere or that it would be easy to do so. Tatar said district heating companies have already begun making the necessary investments, constructing tanks, searching for shale oil, obtaining specific licenses, and implementing logistics. He said the ministry is advising district heating providers to investigate other fuels as well.

"To avoid problems during the cold months, contact your fuel suppliers as soon as possible. Obviously, you should consider the logistics chain. If demand spikes unexpectedly during the winter, logistics will almost certainly be a nightmare. If you plan ahead of time, shale oil sellers and producers will be aware of the volumes that will enter the Estonian domestic market and will be able to sign contracts with logistics companies. In this way it will be feasible," Tatar said.

Andres Taukar, the head of the Estonian Power and Heat Association (EPHA) and member of the board of OÜ Utilitas Tallinna Elektrijaam, confirmed for the current heating season one TWh of gas could be replaced with oil shale in district heating.

Taukar stated while replacing gas is not an easy task, potential issues can be addressed in a timely manner. "There are bottlenecks, but they are all fixable. Environmental approvals, transportation, and fuel alternatives are all viable solutions. Fortunately, summer has arrived and there is still time before the heating season begins," he said.

Estonia produces around one million tonnes of shale oil annually, which is equivalent to 12 TWh, and most of this shale oil is exported.

The largest producers of shale oil in the country are VKG (AS Viru Keemia Grupp), Eesti Energia, and, to a lesser extent, Kivili Keemiatoostus.

Eesti Energia AS said it may increase shale oil production because it has already found buyers for the majority of its shale oil output via forward contracts that hedge price risks. "More than 90 percent of the shale oil we produce has already been sold. However, we can alter our production capacity monthly by up to 15 percent," said Andres Vainola, CEO of Eesti Energia.

"The sooner we receive an order, the more likely it is that we will have enough shale oil in stock. If an order is placed at the start of the heating season, we may not have sufficient supplies," he added.

Estonia's largest shale oil producer, VKG, cannot increase its production but the necessary shale oil may be still delivered, said Ahti Asmann, the company's CEO. "All businesses sign yearly contracts and some sales are left open. These items are then sold on the spot market. This year we still have opportunities for spot sales. So we could make it work with the district heating firms," Asmann said.

Nothing has been decided for next year. "The talks about how much we should set aside for Estonian district plants and business clients in the new year have yet to take place. It is usually October to November when the following year's contracts are discussed. We haven't made any promises for January so far," he added.

Asmann also said the Estonian shale sector would have no trouble replacing all of the gas used in the Estonian district heating sector with shale oil. "In theory, if all of the gas were to be replaced by shale oil, 200 000 tonnes of shale oil is necessary. As more than a million tonnes are produced in Estonia yearly, this in itself would not be a problem."

Asman also pointed out that transporting shale oil to district heating areas is a logistical challenge that could be dealt with, especially when planned ahead of time. For example, a larger amount of shale oil could be transported by rail from Ida-Viru County to Tallinn, for example, to the Muuga terminal, and from there it could be transported by truck to the district heating plants, Asman said.

The Environment and the Environmental Board

Shale oil is clearly more harmful than natural gas. When natural gas is burned, it emits carbon dioxide and water. Shale oil burns darker because, in addition to more carbon dioxide, other compounds such as sulfur and solid matter particles are released.

Smaller fuel-fired plants with a capacity of less than 20 MW will not be required to obtain a special emission permit, Timo Tatar said.

The Environmental Board issues permits for the use of shale oil relatively easily. According to Rainer Vakra, the board's director, shale oil has already been added to the environmental permits of sixteen companies. Six more environmental permits, as well as one complex permit, are currently being reviewed. Three of them are for companies that provide district heating.

Enefit Power applied for and received permission to use shale oil as its primary fuel.

The Environmental Board is unable to predict how many more applications will be submitted. "It depends on companies' willingness and ability to adapt their equipment to burn shale oil or choose another alternative fuel, such as biomass," Vakra explained.

The board, on the other hand, does not want to send the message that district heating plants can now use shale oil indefinitely. For instance, Enefit Power, a subsidiary of Eesti Energia that generates heat in Narva, has a shale oil permit that is only valid until the end of April next year.

In its ruling, the board states that the company is required to re-tender for the supply of natural gas within a reasonable amount of time and to notify the agency of the results.

Rainer Vakra, the agency's director, said that as soon as the availability of gas and the stability of supply on the Estonian market improves, the company should return to gas. "We are all aware that in the current situation gas procurement is unlikely to be successful, and that the use of shale oil for domestic heating may be necessary. However, we must understand that, in the long term, the use of shale oil is more environmentally damaging than gas, and the latter should be preferred."

However, around 200 companies that can already use shale oil as their primary fuel will be able to do so for an extended length of time: "Companies with an environmental permit to use shale oil as their main fuel in addition to gas will be free to decide whether and when to switch to gas," Vakra added.


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Editor: Kristina Kersa

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