4Fields of activity
Our goal and one of the most important principles is adding the value to the oil shale processing value chain and its extension. The existing value chain at VKG is the longest in Estonia and one of the longest in the world.
In order to add maximum value to oil shale as the main input in oil production, we also operate in the following areas in addition to our core activities:
Excavation of oil shale
The excavation of oil shale at VKG takes place at the Ojamaa mine, which is the most recent in Europe and the first new mine in Estonia that was built after regaining independence. Since the layer of oil shale is deposited in the bed that is more than 30 metres deep, underground extraction is used at Ojamaa.
Every day about 150 units of wheeled machines are working underground, and 27 km of conveyors are used on a regular basis. Mining provides employment to about 540 people. By a good tradition, the friendly team of the mine selects the best of the best each year, who are awarded an honourable 'Honorary Miner' title. The best workers are also acknowledged on the last Sunday of August, i.e. on the Miners’ Day. So far, 70 workers of the Ojamaa mine, whose work has been acknowledged by their co-workers and the management of VKG, have been awarded this title.
The total surface area of the Ojamaa mine is 23,7 km2
The excavated area since the opening of the mine has been 10 km2
The annual production capacity is 4,5 million tons of oil shale
In 2021, the Ojamaa Mine restored the production of commercial oil shale to the pre-crisis level of 4.39 million tonnes which is the largest quantity of commercial oil shale produced by the mine (4.14 million tonnes in 2020). The stabilised prices of energy carriers on the global market were a precondition to producing the said quantity. It is worth noting that thanks to a more efficient organisation of work the mine managed to achieve this despite having had its workforce reduced by ten people and 20% more sickness leave days due to COVID-19 than in 2019. On a negative note, we concluded as a result of reviewing the restrictions and extensions related to the Ojamaa Mine that the resource released from the mine will end in 2028, i.e. two years sooner than we formerly presumed. We therefore started investing into establishing a new mine in the neighbouring Uus-Kiviõli mining field in 2021. The company’s priority in the coming years is to ensure as smooth and effective transition as possible from the Ojamaa Mine to the Uus-Kiviõli Mine.
4,37
million tonnes of commercial oil shale4,14
million tonnes of commercial oil shale4,39
million tonnes of commercial oil shaleAvailability of oil shale resource
VKG assesses the availability of the oil resource in the short-term perspective, i.e. current supply, and in the long-term perspective, i.e. future supply.
Current supply
Considering all the oil production capacities, VKG’s need for oil shale is a total of 4.1 tons of the geological resource a year, i.e. 5.1 million tons of commercial shale. The mining permits issued to VKG allow the extraction of 2.77 million tons of the geological resource at the Ojamaa Mine, (3.5 million tons of commercial oil shale) and if other market participants do not extract their allowed volume in the full extent, the extraction volumes at the Ojamaa Mine can be increased to 3.5 million tons (4.35 million tons of commercial shale) through the retrospective extraction mechanism. This means that in order to purchase the missing 750,000 tons (15%) of commercial shale, VKG has to reach agreements with other market participants.
Cooperation with Kiviõli Keemiatööstus in purchasing oil shale continued in 2021. During the year, we did not succeed in restoring Eesti Energia’s oil shale concentrate purchase contract that had been suspended in March 2020 due to the COVID-19 crisis. Referring to the ongoing court dispute about an earlier unfairly priced oil shale sale contract, Eesti Energia did not wish to make a new price offer before the final ruling is clear. Due to this, one of the three Kiviter plants was shut down for the entire year due to a lack of oil shale.
Future supply
Considering VKG’s extraction volumes and assessing the various restrictions and extensions of the Ojamaa Mine, we concluded that the Ojamaa resource will probably be exhausted about 2 years sooner than previously thought, i.e. in 2028. This means that in order to ensure a sufficient oil shale supply upon the exhaustion of the Ojamaa resource, VKG has to start investing into opening the Uus-Kiviõli Mine in 2022. From the viewpoint of environmental sustainability, issuing the Uus-Kiviõli mining permit to VKG was the only right solution, as the said mining field is logistically at the best possible location in terms of VKG’s oil shale processing units in Kohtla-Järve and allows the maximum use of the existing infrastructure. The oil shale enrichment plant at the Ojamaa Mine will be able to ensure the processing of the production from the new mining field and there is no need to perform additional aboveground construction works and disturb the nature. The Uus-Kiviõli Mine should ensure a supply of oil shale for the Group until 2038.
In November 2021, the Supreme Court ended the court dispute between Viru Keemia Grupp and Eesti Energia’s subsidiary Enefit Power AS. The object of the court dispute was the unfairly high price of oil shale at which Enefit Power AS was selling oil shale to Viru Keemia Grupp’s subsidiary VKG Oil AS. The Supreme Court did not give leave to appeal to Enefit Power AS’ appeal in cassation and the ruling of Tartu Circuit Court therefore entered into force on 21 May 2021, partly satisfying the action of VKG. The action proceedings have passed three court instances and entire proceeding took more than six years.
VKG is satisfied that the Circuit Court and Supreme Court’s interpretation of European-style competition law is similar to the understanding of VKG. The ruling gave VKG and more broadly to Estonian private companies an assurance that the Estonian court system is capable of making fair decisions in very complex competition disputes.
Shale oil
The main product of Viru Keemia Grupp is shale oil, which is obtained as a result of processing oil shale.
We have been dealing with shale oil production since 1924. We have been processing oil shale using the Kiviter technology for over 90 years, and since 2005, we have been developing the Petroter technology, too: Petroter I (2009), Petroter II (2014) and Petroter III (2015). The aggregate processing capacity of six production units is 5 million tons of oil shale a year, of which the Petroter plants make up 70%.
Kiviter oil plants are operating on the basis of lump oil shale, and oil is manufactured in vertical retorts, where gas is used as a heat carrier. The plants that are operating on the basis of Petroter technology use fine oil shale, and the manufacturing process takes place in horizontal retorts, while ash is used as a heat carrier.
Shale oil is used due to its small viscosity, low chilling point, and insignificant sulphur content mainly in order to improve the properties of heavy fuel oils, including as an additive to marine fuels, as a raw material in the chemical industry, and as fuel for boilers and industrial furnaces. Although the majority of the production is exported, shale oil is also used locally in driers, asphalt factories, and industrial and small boilers.
We shall remember the year 2021 in the oil market primarily by the extremely volatile prices, with volatility reaching record levels in certain periods, both in terms of daily trading and on a weekly and monthly basis. Similarly to 2020, consumption and the market were influenced by the COVID-19 virus with its different strains. By the last months of the year, however, certain goods groups, such as marine fuels reached consumption levels comparable to the figures of the respective periods of the pre-pandemic year of 2019. The recovery of airplane fuels has been more difficult, as many airline companies were forced to discontinue their existence in 2020–2021. By estimation, the sales volume of that sector was at the end of 2021 about 75% of the pre-pandemic level.
Across the year, the prices of all the oil products increased, with several quotations rising to the highest level since 2014 in December. This increase partly stemmed from international tensions, the unwillingness of OPEC+ to expand product volumes and an overall flow of money to the markets, both in raw material markets and equity markets. Various agencies and investment banks predict that the price of Brent crude oil will rise over the 100 USD/bbl level in 2022, while the increase in the price of energy resources accelerates the global inflation and inevitably increases the difference between the level of the GDPs of wealthier and poorer countries.
The 2021 oil sales figures remained a bit more modest compared to the previous year, mainly due to frequent shutdown in various production units.
The Group’s oil plants processed 4.53 million tonnes of oil shale in 2021 (–4.6%), which was made into 618,099 tonnes of shale oil products (+1,8%). The sales of commercial shale oil amounted to 587 313 tonnes, of which 95% was exported.
The Group's shale oil production, 2018 – 2021
TonnesGlobal demand for shale oil continues to grow in the coming decades
Unlike electricity production, shale oil has a clear potential and high added value as ship fuel. According to OECD’s forecast, maritime transport volumes will grow by nearly three and a half times in the coming 30 years. The multiplication of cargo transport volumes naturally also means a growing demand for ship fuels. The global ship fuel market will grow and there are currently no alternative carbon-neutral solutions for ocean ships.
Eighty percent of the fuel consumption of the shipping sector comes from international trade which has undergone a notable improvement in energy efficiency – the GHG emission per shipped ton is 32% lower than in 2000. There are currently more than 120,000 ships with a capacity of over 100 tons. Of these, 90% are cargo ships with an average useful life of 21 years. Which in turn means that any technological innovations will take time.
Volume and growth forecast of international maritime trade
Manufacturing heat, steam, and electricity
A hundred years of experience in refining oil shale has taught us to get much more than just oil out of oil shale. Refining oil shale in VKG means the combined production of oil, heat and power, which is the most eco-friendly and economically efficient way to use this resource.
The shale oil production process generates oil shale gases that do not condense into oils and are transferred to VKG Energia where they are used for manufacturing heat, steam, and electricity. Heat energy is forwarded to the local central heating system, steam is sold to production companies located in the neighbourhood, and most of the electricity is consumed by the companies of the Group. In addition to that, we also use oil shale gases at the limestone plant, whose produce is consumed by our own sulphur-trapping devices that purify exhaust gases. This production chain guarantees the ultimately efficient and environmentally-friendly use of energy contained in oil shale.
VKG Energia produced 409 GWh of electricity in 2021, which is 9% better compared to the previous reporting period. The price of electricity started growing in leaps from September last year.
The average prices of electricity in the price region of Nord Pool Spot Estonia in 2013–2021
The price of electricity on the exchange, EUR/MWh. The high price of electricity has been caused by several factors: an increase in consumption, an increase in the price of natural gas, the record level of CO2 quota prices, the low level of hydro-resources in the Nordic countries.
Allikad: Nord Pool
What is the impact of the green movement on energy production?
The European Union having set its clear aim at carbon-neutrality has an impact on the entire energy sector. Ever increasing amounts of uncontrollable renewable electricity is entering the electricity market. This means that in order to keep the electricity system stable we also need stable controllable power plants and strong connections between power systems. We are technically very suitable for the role of a controllable power plant. New services will definitely come to the market, which are essential for balancing the production and consumption of electricity at any point of time and for maintaining frequency in the power system. The price of the CO2 quotas plays an important role and may quickly remove fossil fuels from market competition. Although the climate policy and the cost of the CO2 quotas significantly limits the use of fossil fuels, natural gas still has an important role to play in the energy sector. Our big challenge is to constantly find ways to increase efficiency and stay competitive, as well as to think about the future – about reasonable ways to ensure regional district heating and heat supply in the long-term perspective.
What challenges will the energy sector be facing in the coming decades?
Due to uncontrollable renewable electricity sources, primarily wind turbines and solar power, the price of electricity will increasingly fluctuate and controlling the consumption will become ever more important. The consumption of electricity will grow significantly, as electricity has an ever increasing role in the convenient functioning of society. Several sectors – one of the largest of which is transport – will start to increasingly use electricity. The storage of electricity will become more attractive, be it in the form of electrical car batteries or pump-hydroelectricity plants. Besides the electricity market, changes are also happening in the heating and fuel markets. In the heating market, oil and natural gas are increasingly replaced by wood chips and biogas. In the fuel market, adding biofuel to engine fuels has become mandatory. The issue of whether considering wood carbon-neutral is justified has been recently raised. If wood is no longer considered carbon-neutral, Estonia will be facing a great challenge in replacing the use of wood with other renewable sources. It is clear that in addition to uncontrollable renewable energy, any systems also need stable and controllable sources and therefore fossil fuels, particularly natural gas will still have an important role.
Member of the board VKG Energia
Member of the board VKG Energia
Unlike 2020, when the prices of electricity were low and the average air temperature in Estonia was at a record high level, 2021 was favourable for the business of heating and power plants. 2021 was a cold year, the average ambient air temperature during the heating season was -0.9 °C, which was 3.3 °C lower than in 2020. During 2021, VKG Soojus sold 297 GWh of heat to customers in its service area. Due to the heating period being colder than usual, 20% more heat was sold than in the previous year.
The Group’s production of heat and electricity and steam
GWh- Electricity
- Heat
- Steam
Energy for over 30,000 clients in Narva, Narva-Jõesuu and Sillamäe
The sale of electrical power and network services is handled by VKG’s north-east Estonian subsidiary VKG Elektrivõrgud. The company’s service area includes Narva, Narva-Jõesuu and Sillamäe.
In 2021, the company distributed 253.9 GWh of electricity. Compared to 2020, the volume of network services to clients grew by 5.6% in 2021. Consumption volumes grew in all the client groups. Consumption by corporate clients was primarily influenced by the fact that the anti-coronavirus measures were more lenient than in the previous year.
VKG Elektrivõrgud sells electricity in the free market on the basis of price packages developed by VKG Elektrivõrgud or in the form of general services to clients who consume electricity without an electricity contract. Compared to 2020, the electricity sales volume grew by 8.2% in 2021. The exchange prices of electricity grew in leaps in 2021 and the realisation of electricity was therefore significantly higher than in 2020. The company sold 110.9 GWh of electricity in 2021.
Every year, VKG Elektrivõrgud invests considerable amounts into the maintenance of power lines, substations and other equipment, thus increasing network reliability and reducing network losses. In 2021, VKG Elektrivõrgud commissioned new installations and reconstructed existing installations for 1.8 million euros. The enterprise pays great attention to electrical safety and constantly holds further training courses of its employees.
Oil shale chemicals
Unlike other processors of oil shale, VKG uses the entire potential of oil shale. The organic part is used for producing very expensive chemicals with a purity level of over 99%, which are used in cosmetics, pharmaceutical, tyre and electronics industries. End users include renowned companies such as Schwarzkopf, Lexus, Samsung, LG.
In 2021, we produced 2,224 tonnes of fine chemistry and phenol products, which the company sold to clients both in Estonia and abroad. VKG’s chemistry products were mainly sold to the UK, Indian, Italian, Belgian and US markets. In the sales of phenol products, we continued at positions achieved in the previous year, fulfilling long-term supply contracts and also concluding new ones.
Oil shale chemistry can be divided into two groups: oil shale chemicals (alkyl resorcinol fractions) and fine chemicals. The first group is widely used in rubber and plywood industry, the production of moulded forms, etc. The second group includes products with a high level of purity, which are used in cosmetics, perfume manufacture, and electronics. The main field of application of fine chemicals is the synthesis of medications and the manufacture of hair dyes. For example, fine chemicals produced in Estonia can be found in the products of such companies as Keune, Estel, and Schwarzkopf. Besides, they are used in the process of production of liquid crystals for LCD monitors.
Oil shale phenol fractions are used in the form of resin adhesives in the tyre, plywood, and oil industries and in the process of manufacture of tyres with high durability level (Goodyear, Pirelli and Bridgestone) as well as in the manufacture of Lexus and Toyota spare parts.
The production of fine chemicals contributes to the development of the national economy and oil shale industry since they are manufactured from the by-products of oil shale processing. Extensive research and development expenses as well as marketing expenses still remain a challenge in the oil shale chemical industry. The obligation to register chemical substances in accordance with the European Union REACH Regulation also entails significant expenses.
The chemistry market is generally a large and not easily comprehensible sector of industry which is significantly affected by volatility. In connection with this, long-term contracts have become a thing of the past. As dependence on what is happening in the raw material and logistics markets is very strong, contracts are increasingly concluded for short periods – a month, a quarter, half a year. If the Suez Canal is closed for a week, chaos immediately ensues in the chemical raw material market as well as other raw material markets in general. Thus, logistics solutions affect the price and the length of the supply chain.
More information about fine chemicals is available here
www.finechem.eu
The sales of VKG Oil’s phenol products fully corresponds to the production capacity, i.e. everything that is produced is sold. The demand for our products is actually higher than we are currently producing.
The benchmark product for us is resorcin. Fortunately, it market price is currently at a level which ensures that our products are competitive. This in turn means that we have to carefully monitor this market and, if necessary, react in time, as the trends in the resorcin market have a direct impact on the sales of our phenol products. In addition, we have change the sales structure of phenol fractions – while we previously focused on crude phenols, we now sell products from the same raw material that have been given added value in the course of the production process, such as Rezol and Honeyol, which are included in the rubber resin recipes of our clients. The demand for these products is strong and Asia is the main sales growth area, with nearly 90% of our phenol products going there.
Nikolai Petrovitš
Member of the board VKG Oil
The benchmark product for us is resorcin. Fortunately, it market price is currently at a level which ensures that our products are competitive. This in turn means that we have to carefully monitor this market and, if necessary, react in time, as the trends in the resorcin market have a direct impact on the sales of our phenol products. In addition, we have change the sales structure of phenol fractions – while we previously focused on crude phenols, we now sell products from the same raw material that have been given added value in the course of the production process, such as Rezol and Honeyol, which are included in the rubber resin recipes of our clients. The demand for these products is strong and Asia is the main sales growth area, with nearly 90% of our phenol products going there.
Nikolai Petrovitš
Member of the board VKG Oil
Limestone production
VKG’s lime factory operates since summer 2014. The factory uses limestone from Karinu quarry, which is used to produce lime necessary for the operation of the desulphurisation device.
Semi-coke and generator gases deriving from the production processes of shale oil are used to get energy for decarbonisation. Both the purified char gas and the mixture of semi-coke and generator gases can be used in the operating process. To mix and dose gases, a modern mixing unit has been built. It was developed by Viru Keemia Grupp and is a unique solution developed in Estonia for limestone production.
In 2021, we produced 26,951 tonnes of lime , all of which was used in the process of capturing SO2 from flue gases. The average content of free lime is the finished product grew by 1.5% from the previous year, reaching 76.1%. The OEE of the lime factory grew by 4%, reaching 76.1%. The improvement of the quality and the increase in the quantity of the produced lime has reduced the overall consumption of lime in VKG Energia’s desulphurisation devices. This allowed us to save on purchases of additional lime quantities.
The lime factory’s production capacity fully covers all the current and future needs of VKG and also provides an opportunity to sell a certain amount of limestone to consumers outside of the Group. Some of the products of desulphurization found use in agriculture. The product complies with the quality requirements set for lime fertilizers in the Fertilizers Act, which is also proven by a certificate issued to the company.
Special projects
The Group’s subsidiary Viru RMT is an engineering and project management centre with diverse know-how operating in the international market. The company has several decades of experience and offers repair and assembly services as well as the production, installation and maintenance of metal structures and metal components
Areas of activity of Viru RMT:
- electrical works from the lamps in the ceiling to transforming substations;
- design, production and installation of technical equipment;
- automatic management systems design, software development and installation;
- installation and repair of control and measuring instruments;
- maintenance and repair of lifting equipment, and lifting works;
- project management for the performance of integral technical solutions
Main projects launched and implemented in 2021:
- VKG Oil’smonitoring system of flue gases from the generator gas distillation equipment (Opsis);
- Modernisation of VKG Oil’s railway loading facilities;
- Nitrogen breather system for VKG Oil’s containers;
- Production and delivery of equipment to Hamar ehf Iceland;
- Design and construction of 6kV land cable lines for Tbhawt Manufacturing OÜ;
- Design and construction of 6kV land cable lines for Eastman Specialties OÜ;
- Renovation of the Roela 110 kV substation of Elering AS into a compact substation;
- Stage 1 of the renovation of the street lighting infrastructure in the City of Narva-Jõesuu.
An overview of the works performed is available on the
homepage of Viru RMT
The Icelandic project
Viru RMT already had a positive experience from previous cooperation with an Icelandic company, so that a good reputation and the cooperation partner’s recommendation opened doors and laid the ground for launching a new project with another company. It was a unique project for Viru RMT – we had to make, deliver and assemble equipment for a geothermal power plant in Iceland. In terms of technical capabilities, Viru RMT would be able to carry out such a project independently, but as the scope of the work was very large and delivery terms were short, subcontractors were also engaged in order to comply with the terms. The main challenges in the project included:
- performing very large-scale works in a short time, about 400 tonnes of products in six months;
- some products are very big (over 8 metres), so that a part of the assembly work has to be done at the port, followed by loading on ships.
Reconstruction of a substation
The reconstruction of the Roela 110 kV substation, in the course of which the switchgear and the building of the old substation had to be demolished, after which a new 110 kV switchbay and a new control building were designed and built. This project was carried out in cooperation with EPCM Consulting. It was an important project for Viru RMT, but not a novel one, as the team has been performing similar works for several years by now.
Reconstruction of street lighting
The reconstruction of street lighting in Narva-Jõesuu, Olgina, Soldina, Kudruküla, Sinimäe and Vaivara was one of the important and large-scale projects. In the course of this project, more than 1,000 new lights, 8 km of mainline cables and 16.5 km of new air cables were installed. Viru RMT carried out the project in cooperation with EPCM Consulting OÜ. The team of Viru RMT has previously performed similar works in the course of construction of the Jõhvi promenade and the Sillamäe traffic junction.
