Estonia Sees Its Oil Industry Continuing for Another 10-15 Years

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As the European Union accelerates the transition away from fossil fuels, one of its members still sees its own small oil industry continuing for a decade or more.

Estonia is the only country in the world that has depended for decades on burning oil shale, a sedimentary rock that contains hydrocarbons, for most of its energy needs. Despite the similar name it differs greatly both in chemistry and its carbon intensity from American shale oil, which has transformed the global energy market.

For decades, Estonia generated electricity by burning the oil-soaked rock, but since 2018 most of those power plants have shut down as the bloc’s CO2 costs surged. The country still expects to extract the hydrocarbon, also called kerogen, in a less carbon-intensive form that produces fuel oil for another 10-15 years, according to Economy Minister Taavi Aas.

“The International Energy Agency has indicated that the need for fossil fuels will definitely remain until 2040,” Aas said in an interview this week. “Whether it is possible to produce shale oil in Estonia until 2040 -- probably not because as we see, Europe’s climate goals become steadily more ambitious, meaning a rise in CO2 prices. Maybe it won’t be 2040, but I think 2030 or 2035 is still valid.”

Earlier this year the government backed an injection of 125 million euros ($146 million) into utility Eesti Energia AS for a new plant producing oil from kerogen, gas and electricity, due to be completed in 2024. The move was criticized by the political opposition and subject to a legal challenge by a renewable energy lobby group.

The government says the project is in line with its EU climate commitments. Estonia aims for a 70% cut in carbon emissions by 2030, compared with the EU executive plan to raise the bloc’s target to 55%.

Eesti Energia and privately owned rival Viru Keemia Grupp, the country’s largest oil producers, sold just over 1 million tons of oil last year for about 400 million euros. Norway, western Europe’s largest energy producer, pumped 78.4 million tons of oil in 2019, according to data compiled by BP Plc.

The increasing cost of emitting CO2 has turned the Baltic country, with the most carbon-intensive economy among OECD members, from one of the few electricity exporters in the region into an importer. Renewable energy, mainly biomass, made up more than half of the domestically produced electricity in the first seven months, compared with 30% for all of 2019 and 16% in 2018.

The transition away from Estonia’s oil shale industry, concentrated in a region on Russia’s border that’s mainly populated by a Russian-speaking minority, will be accelerated by “hundreds of millions of euros” of EU aid, if the plans are approved by the EU parliament, Aas said.

“About 10,000 people can’t be turned around in a moment by just pulling the plug and saying everything is different now,” Aas said.

©2020 Bloomberg L.P.

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