VKG drops diesel plant plans

Photo: Viru Keemia Grupp

No diesel fuel production from oil shale in Estonia, in foreseeable future.

While just a few month ago both Eesti Energia and Viru Keemia Grupp (VKG) executives were convinced in building Estonian refineries to turn oil shale into diesel fuel, by now the plans are on the rocks. The Eesti Energia diesel factory alone was planned to cover the entire country’s diesel needs.

At the end of May, Eesti Energia announced its decision not to build the diesel plant. Yesterday, the same words were uttered also by VKG.

According to the VKG board member Jaanus Purga, financing the investment proved too expensive. Mr Purga said that the refinery would be a profitable business projects, but the company’s loan burden being heavy as it stands, one more loan would be too much.

«VKG has decided to postpone building the refinery,» said Mr Purga. «The planned close to €400m investment is weighty and significant both for VKG and Estonia, wherefore all essential inputs must be stable, long term.»

Mr Purga said the company lacked assurance regarding future size of oil shale mining fees, the government having raised the natural resources using rights fee at the end of last year.

«Right now, we cannot be sure how the taxes will turn out, regarding the oil shale sector. For us, it would be very important to have clarity, already now, what 2016 will bring regarding resources and emissions fees, as well as the oil shale recourses’ policy for the next development plan period,» commented Mr Purga.

According to Eesti Energia’s CEO Sandor Liive he is not surprised by the VKG decision. «As we saw ourselves, there is no need to hurry, as costs refining the crude oil would exceed the profits,» said Mr Liive.

He admitted that the oil producers themselves had overly advertised their diesel fuel production. According to Mr Liive, Estonia’s oil-state-potential has not changed, as oil produced from oil shale sells well.

«The world abounds with oil states, but refining business gives thin margins and has, for a long time, been loss-making,» explained Mr Liive. «It makes no sense for us to build a refinery if we are able to sell crude oil and purchase diesel fuel from refineries in states in near vicinity.»

A large problem looming over Estonia’s local oil shale industry is European Union’s climate policy. Estonian politicians lead by Andrus Ansip have tried to lobby Brussels into leniency regarding diesel fuel produced from oil shale. Unofficial data, however, claims the attempts have been futile, European Commission meanwhile about to ratify a draft which would make sales of oil shale diesel more complicated in the EU internal market – and impossible in Estonia.

Mr Purga admitted that giving up the plant was no easy decision, there having been differences at board level. As for him, he personally would have begun to build. The more so as, in June, the refinery building procurement was completed.

As Eesti Energia announced the will-not-build decision, it said it was considering cooperation with VKG and Kiviõli Keemiatööstuse OÜ (Kiviõli Oil Shale Processing and Chemicals Plant). Mr Purga yesterday said the managements of the two companies have met. «We have exchanged ideas, but before [anything happens] Eesti Energia must substantially increase its oil production,» said Mr Purga.

Currently, Eesti Energia is launching its first new oil plant; VKG has one new one ready, another under construction, the building of the third one probably starting in the autumn.