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Fields of activity

Our goal and one consistently important principle is adding value to the oil shale processing value chain, and its extension.
Fields of activity

Excavation of oil shale

Excavation of oil shale

We extract oil shale in the Ojamaa Mine which will celebrate its 15th anniversary in 2024. Since the layer of oil shale is deposited in a bed that is more than 30 metres deep, underground extraction is used at Ojamaa.

In 2023, the Ojamaa Mine continued its normal operations of extracting, enriching and transporting oil shale to oil production according to the agreed quantity and quality. Throughout 2023, the biggest challenge for VKG Kaevandused was the reliability of the conveyor belt linking mining and oil production. As the 25 km long belt on the 12.5 km conveyor had been in operation for more than 10 years, the belt joints were beginning to show signs of failure. In order to ensure the reliability of the conveyor, repeated downtimes were carried out during the year to repair the most critical joints and this ensured the reliability of the conveyor until the arrival of the new belt in December.

Production volumes of the Ojamaa Mine:

2021
4.39

million tonnes of commercial oil shale

+6%
2022
4.25

million tonnes of commercial oil shale

-3%
2023
4.44

million tonnes of commercial oil shale

+4,5%

The Ojamaa Mine in figures:

525

töötajat

23.7

km2 pindala

4.5

miljonit tonni kaubapõlevkivi aastast tootmisvõimekust

150

ratastel tehnika ühikut

27

km konveiereid

90

aukaevurit

Image

Why is Uus-Kiviõli important?

VKG’s plan is to start supplying oil shale from the Uus-Kiviõli Mine for oil production when the Ojamaa Mine is depleted in 2026-2027. We have been actively preparing for this over the past few years. We have invested in aboveground infrastructure on the basis of established plans, and have launched an international construction and design procurement for the construction of aboveground and underground conveyors. The connection to the electricity network must be completed by mid-2025. Considering that the construction of the Elering substation will take 28 months from the announcement of the procurement to completion, this is a very urgent issue. By last spring, VKG had a right of superficies for the substation on state land, but there was no personal right of use for the Elering substation, which can only be granted by the landowner, namely the state in the form of the Minister of Economic Affairs. Obtaining the Minister’s approval for a valid mining permit is a standard technical procedure, which was pending since the end of 2022 and which caused confusion for the whole sector in March last year.

It took 15 years to get the Uus-Kiviõli mining right.

VKG’s journey to the Uus-Kiviõli mining site has been a long and challenging one. The Group applied for a permit to mine Uus-Kiviõli in 2004. A year later, Eesti Energia submitted a similar application, and seven years later the Ministry of Climate issued a mining permit to Eesti Energia. Since the Earth’s Crust Act would have required the permit to be issued to VKG, VKG sued the Ministry of Climate. In March 2014, the Supreme Court partially upheld VKG’s appeal and annulled the decision of the Ministry of Climate. After the judgment came into force, Eesti Energia and VKG entered into negotiations to reach a reasonable compromise on the division of Uus-Kiviõli. The parties reached a nuanced agreement in 2019, dividing the Uus-Kiviõli mining site into two mining claims in the proportion of two thirds to Eesti Energia and one third to Viru Keemia Grupp. The Environmental Board agreed with this solution and issued us the corresponding mining permit in 2019, which is valid until 2049 and has a permitted annual limit of 2 million tonnes of geological reserves (the total reserves of the mining claim are nearly 70 million tonnes). We need to use 5 million tonnes of oil shale per year to ensure our normal production process, which is why the cooperation agreement between the two companies also foresees a plan to increase the extraction capacity of the issued mining permits. Our aim is to achieve legal certainty for the extraction of up to 5 million tonnes of oil shale per year, and we are currently carrying out environmental impact assessments in order to adjust the mining permits accordingly.

As the process of modifying mining permits is a time-consuming process and VKG needs to bring the new mine into operation in the near future, in the summer of 2022 we agreed with the state-owned company that until they start using the mine, VKG can take a share of their annual production limit. As a result of this agreement, we will be allowed to mine five million tonnes per year at Uus-Kiviõli until Eesti Energia starts mining.

Availability of raw material

VKG assesses the availability of the oil shale 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 5.1 million tonnes of commercial shale a year. The mining permits issued to VKG allow the extraction of 3.5 million tonnes of commercial oil shale at the Ojamaa Mine, 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 4.35 million tonnes through the retrospective extraction mechanism. This means that in order to purchase the missing 750,000 tonnes of commercial shale (i.e. 15% of VKG’s total oil shale need), VKG has to reach agreements with other market participants or, if this cannot be achieved, VKG will have to shut down part of its production capacity due to a shortage of raw material.

Oil shale purchasing cooperation with Kiviõli Keemiatööstus continued in 2023. However, it has still not been possible to reach an agreement on a fair sales price for oil shale with Eesti Energia, Estonia’s biggest extractor of oil shale. Due to this, one of the three VKG’s Kiviter oil plants has been conserved since 2020 and is waiting for the time when VKG will perhaps itself be able to supply this production capacity after the opening of the Uus-Kiviõli Mine.

Future supply

Considering VKG’s extraction volumes and assessing the resource available from the Ojamaa Mine, we shall probably exhaust the Ojamaa Mine by 2028. In order to ensure raw material supply, VKG started actively investing into the opening of the Uus-Kiviõli Mine in 2019, as a smooth transition from one mine to another requires long-term planning and strict adherence to plans. Although we have reached an agreement with Eesti Energia to the effect that until the successful completion of the new environmental impact assessment VKG can use the extraction limits allocated to Eesti Energia at Uus-Kiviõli, there is still a risk that if raising the extraction limits fails, VKG’s raw material supply may be endangered, should Eesti Energia decide to come to extract oil shale at Uus-Kiviõli simultaneously with VKG. In order to mitigate this risk, VKG has been seeking a compromise with Eesti Energia throughout the year and has also involved the Competition Authority in the discussions, but as at the date of this report no solution has been found. This represents a big risk for VKG – the search for a solution will continue into 2024, because a private company cannot make a 100 million euro investment without contractual assurance that it can extract a sufficient volume of oil shale from the mine to be opened.

Despite the risk described above, VKG Kaevandused continued to invest in the opening of the Uus-Kiviõli Mine in 2023, as the company has no alternatives to supplying raw materials for oil production. The Uus-Kiviõli Mine should ensure the Group’s oil shale supply until 2038. In the environmental context, the Uus-Kiviõli Mine is the only right solution, as this mining field is logistically in the best location with regard to the shale oil plants in Kohtla-Järve and allows us to use the existing infrastructure to the maximum possible extent. The conveyor belt system used at Uus-Kiviõli is by far the most environmentally friendly way to transport oil shale. Its close proximity to the Kohtla-Järve production area also means lower energy consumption. The oil shale enrichment plant located at the Ojamaa Mine is capable of ensuring the processing of the raw material extracted from the new mining field and therefore there is no need for additional aboveground construction works and nature disruptions.

Production of shale oil

Production of shale oil

The main product of VKG is shale oil, which is obtained as a result of processing oil shale.

In 2023, VKG Oil continued its normal activities of thermal processing of oil shale into oil products using equipment based on both Petroter and Kiviter technologies. VKG Oil processed 4.80 million tonnes of oil shale in 2023, an increase of 12% compared to 2022. The increase in the oil shale processing volume was mainly due to the reconstruction of the Petroter I plants in 2022, in addition to an overall improvement in equipment reliability. At the same time, the production of shale oil products increased by 15%, which shows that for the third year in a row we have managed to improve the output of oil products produced from one tonne of shale oil. In 2023, this leap was mainly due to the mid-year closure of the coking plant and the diversion of all raw material to the production of oil products.

In the light of soaring energy prices, improving the energy efficiency of production became a priority for VKG Oil in 2023. As a result, the energy consumption (i.e. the amount of electricity and natural gas used) per tonne of oil products produced was reduced by 15%. The improvement in energy efficiency will be a continuous objective in the years ahead.

The second major project launched in 2023 is the third phase of the circulation oil purification project, which is expected to be completed by the end of 2024 and will provide an additional 3% of production output compared to 2023. The circulation oil purification is an extension of the production capacity built at the Petroter facilities as a result of the development work of VKG’ engineers and technologists, which will allow to process 20-30% more oil shale in the same reactor compared to the original project capacity. The first trial of this type was carried out in 2017, and has by now proven itself enough to divert all the Petroter plants’ circulation oils to this equipment for purification. As with any new development, there are risks involved, and as the owner of the technology, we have to figure out how to manage these risks.

The Group’s shale oil production in

tonnes

2019
636 512
2020
612 039
2021
618 099
2022
583 000
2023
669 154

Oil shale chemicals

Oil shale chemicals

In addition to oil products, VKG also produces oil shale fine chemistry products. 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.

In total, 1,911 tonnes of fine chemistry and phenol products were produced in 2023. With the currently used technology, the production of oil shale fine chemistry is based on the reprocessing of a process residue of the Kiviter plants – phenol water. In view of the changing market conditions in the fine chemistry market (price impact), last year we focused on the production of two phenol products: Rezol and Honeyol. The phenol products, Rezol, Honeyol and pure resorcinols are primarily exported to chemical industry enterprises. China, the United Kingdom, India, Italy, Germany and the United States are the target markets.

For economic and environmental reasons, we decided to conserve the coking plant and discontinue the production of synthetic and fine chemical products. Coke production was stopped in May and conservation took place during August and September.

Production of heat, steam and electricity

Production of 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.

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.

As a side product, 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 producing 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 flue gases. This production chain guarantees the ultimately efficient and environmentally-friendly use of energy contained in oil shale.

In 2023, VKG Energia received 15% more input energy than in 2022 and produced 449 GWh of electricity, 23% more than in the previous year. The higher increase in electricity production was due to an 8% decrease in heat production, mainly due to a decrease in purchases from one large customer, but also to warmer weather on the average. VKG Energia’s electricity production in 2023 accounted for 9.1% of the total electricity produced in Estonia and 5.5% of the total electricity consumed in Estonia (4.2% and 3.8% in 2022, respectively).

While in 2022 electricity prices reached record highs, 2023 brought electricity prices back down. As Estonia is a participant in the Nord Pool electricity exchange, our electricity prices are influenced by a number of factors outside our domestic markets, such as water levels in Norwegian hydro reservoirs, the output of Finland’s Olkiluoto 3 nuclear power plant, and weather related factors. Electricity prices also fell due to low natural gas prices in 2023.

Price of electricity on the exchange NPS EE, EUR/MWh

The 2023 average electricity price on the NPS EE exchange decreased to around the 2021 price level. VKG Energia’s average electricity sales price was 132.87 in 2023, decreasing by 2% in a year (136.18 EUR/MWh in 2022). The price decrease was small since 49% of electricity sales were at a fixed price, which was above the average exchange price.

Special projects: from the construction of substations to the production of metal structures

Special projects: from the construction of substations to the production of metal structures

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
  • design, installation and configuration of automated control systems
  • repair and calibration of control and measuring instruments
  • lifting works and maintenance and repair of lifting equipment;
  • project management for the performance of integral technical solutions.

Main projects launched and implemented in 2023:

  • Manufacturing of pipeline foundations, commissioned by Hedinn hf Iceland; Steam separator construction, commissioned by Hedinn hf Iceland;
  • Hedinn hf Iceland, Steam separator valmistamine;
  • Power supply construction in the area of Kreenholm Str. 60 and 64 in Narva city; piirkonna elektrivarustuse ehitustööd;
  • Power supply construction of the schoolhouse at A. Puškin Str. 29 and the surrounding area in Narva city; elektrivarustuse ehitustööd;
  • Audru Renovation and connection of the Audru 110kV substation;
  • Viimsi Renovation of the Viimsi 110kV substation;
  • Kehra Construction of the connection of the Kehra 110/35/10 kV substation;
  • Tapa Connection of the Tapa 110kV substation;
  • Delivery, design and installation of a battery pack and charger (Põhja Thermal Power Station);
  • First stage of the reconstruction of the power supply in Sirgala and Viivikonna.

On 19 March 2024, the Group sold Viru RMT, which is engaged in the production of metal structures, to a new owner – ICESTONIA OÜ, run by Indrek Metsatalu, a member of the Management Board of Viru RMT.

“A company with the profile of Viru RMT requires a very strong management focus, both in terms of corporate strategy and day-to-day operations. VKG, on the other hand, is a chemical industry company with business focus and competences primarily directed towards the development of industrial production in Ida-Viru County. We have therefore made a proposal to the current head of Viru RMT, Indrek Metsatalu, to acquire the company and we are pleased that Indrek was interested.”

Jaanis Sepp

Jaanis Sepp

Vice Chairman of the Management Board
and Financial Director

An overview of the works performed is available on the homepage of Viru RMT

www.virurmt.com

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