Dear reader!

For Viru Keemia Grupp, 2019 was a year of developing stable production activities on the backdrop of political discussions over the global climate policy, which potentially have a very extensive and long-term effect.

Our mission is the valorisation of the most important Estonian mineral resource – oil shale. Last year, we processed five million tonnes of oil shale, producing 659,000 tonnes of oil and phenol products for the world market. In addition, we produced 1 TWhof energy from oil shale gas for the consumers of electricity, district heating and industrial steam. We continue to be the most efficient enterprise adding value to oil shale in Estonia in terms of both the oil shale used per produced commercial oil shale and the CO₂ emissions.

2019 brought along great changes in the valorisation of oil shale. In 2012, the European Union discontinued the free allocation of CO₂ quota for the production of electricity from oil shale. The rise of the CO₂ quota prices which started as a result of the political decisions adopted in 2018 rendered the production of electricity from oil shale by means of direct combustion permanently and conclusively non-competitive. It also proved that the decision to focus on the production of shale oil, which was made upon the construction of Petroter I in 2009, was the right decision. Estonia’s final transition to the production of shale oil means that the amounts of oil shale valorised inthe future will be smaller, but the process will be significantly more efficient and environmentally friendly and create higher added value.

The global ship fuel market was preparing for the implementation of the new sulphur limits established by the International Maritime Organisation (IMO) from January 2020. The formerly allowed maximum sulphur content of 3.5% was replaced by 0.5%. With itssulphur content of 0.7–0.8%, the Estonian shale oil is quite well positioned to cover the new market demand.

The implementation of IMO 2020 is a clear indication of a shift towards introducing cleaner fuels. We therefore decided to sign a memorandum of mutual cooperation with Eesti Energia at the beginning of the year to initiate the feasibility study of a pre-refining plant. The aim is to process all the shale oil produced in Estonia into ship fuel that meets international standards. The introduction of the final product to the market would significantly strengthen the global competitiveness of shale oil and increase the added value created. The results of the first stage of the feasibility study will be determined by the 2^nd quarter of 2020.

The most important event from the perspective of the future of Estonian shale oil production was the European Green Deal concluded in December 2019, stating the European Commission’s objective to achieve carbon neutrality by 2050. The Green Deal, also supported by Estonia, is a vision document without a clear plan or impact analysis. The regulative environment of shale oil production until 2030 will be determined in the implementing acts to be passed in 2020–2023. The said regulative uncertainty will doubtlessly have an effect on making long-term investment decisions. An important task for the Estonian state in the nearest future is to formulate expectations with regard to the time perspective of the continuation of shale oil production and to provide the legal certainty necessary for investments.

A shift towards more efficient and cleaner production is natural and inevitable. Viru Keemia Grupp places great importance on cooperation with the community towards maintaining the quality of the living environment and on development work with research institutions in finding new and environmentally sustainable solutions. The work done in various development projects gives us grounds for assurance that over the coming ten years we can reduce our CO₂ emissions by 20–40% compared to the current level. We see untapped potential particularly in the valorisation of oil shale gases, as well as in other projects with a smaller positive impact.

The European Green Deal has given investors a strong guideline to develop all kinds of energy generation possibilities based on renewable sources. It also sends a signal that the European Union has no intention of having its regulations guarantee the competitiveness of fossil fuel production on global markets. Viru Keemia Grupp is therefore actively investing in development activities in order to find options for diversifying its revenue base. Above all, we are looking for possibilities in business areas with natural demand and free competition. Demand created by state regulations and supported with grants is not sustainable in the long-term and is therefore not attractive to private capital.

At the time of preparation of the annual report, the world is being ravaged by the Corona virus, the effect of which on the world will most probably be greater than we can even guess. The crisis poses a challenge to regulations, economic sectors and social values. After 2019, Viru Keemia Grupp will enter this changing world stronger than ever before. The values carried by our employees and shareholders – openness, commitment and development – provide a strong foundation in uncertain times.