The billion plant of VKG Oil allows the higher valuation of oil shale

VKG OIL AS

Entrepreneurship Award 2009 - Main Prize
Exporter 2009

In these days Kohtla-Järve is in anticipation – VKG Oil soon launches the brand new shale oil plant with the cost of 1.1 billion kroons.

In autumn 2008 when the economic crisis already ravaged the Estonian companies, Jaanus Purga, the development director of Viru Keemia Grupp, stated in the same yearbook that crisis has not yet reached Kohtla-Järve. He talked about several new ideas, e.g. the production of cement and diesel fuel.

Now, a year later, the situation has changed. Some plans have been temporarily frozen, so that the subsidiary VKG Oil could terminate the construction of the oil plant started at the top of the economic boom by the deadline. In a couple of months the latter works on mine waste for testing, thereafter on oil shale.

"You can stop the repairs at home. You postpone it, no problem. But such construction as oil plant cannot just be stopped,” Nikolai Petrovitš, the chairman of the management board of VKG Oil, says.
The macroproject involves approximately hundred companies and half a thousand persons from several different countries – from Finland, Germany, Russia, Switzerland etc besides Estonia. Petrovitš: “Imagine that this mechanism will stop even for a week .. the restoring of the working pace would be practically impossible!” According to him the launching of the plant should surely take place in autumn, not during winter frost.

Last year VKG Oil had several problems. “It was really difficult from last autumn up to this spring – we yielded the net loss of about 28 million kroons within five months,” Petrovitš admits. The main concern is the low price of petroleum which fell from the level of 140 dollars per barrel as the starting level of the last year to 40 dollars at one time this year and then slightly increased. The latter has a direct impact on how much the company can ask for its shale oil which will be mixed with black oil and is used as the ship fuel.

Also, there have been major problems with raw material. Eesti Energia decided to temporarily close Narva Power Station and related to that the supply of oil shale to VKG decreased. “We had nothing to make oil of and the plant practically was at a stop for half a month,” Petrovitš says.

The situation where practically the competitor Eesti Energia supplies raw material to VKG should end according to Petrovitš. The company should launch its mine in 2012. Otherwise the supply of the new fancy oil plant would be seriously disturbed. The purchase of the oil shale from Russia is complicated due to its logistics and the relations between two countries.

And this is not all – the markets of coke, bitumen and pitch have also not offered anything pleasant to VKG. The consumption of coke fell for example in Ukraine and Russia and related to the latter also the price decreased ten times last year. It was so bad that at some time there was no sense to produce coke. True, in the last months the metallurgy industry of the neighbouring countries have started to recover.

For already several years the company also contributes to the future – production of expensive oil shale phenols (oil shale is though “Estonian Nokia”). One of the phenols- honeyol looks like honey. The other – 2 and 5 methyl resorcin is like sugar. These have been sold by couple of tons to the car producers of Japan and Germany, such as to the noise suppressor mats of Lexus, also to hair dye producers of India and other countries. The last exciting news is that with high probability one well-known giant of chemical industry will start to buy 2-methyl resorcin from Kohtla-Järve.

Tens of millions of kroons can be strongly invested to the business of phenols, as the usage area of these chemicals is expanding. But now there is no money for everything. VKG employees have major faith in the future of the new oil plant, as the best possible team has been involved in the project.

Petrovitš says that if the price of petroleum remains at the level of 50 dollars per barrel, the oil plant will be profitable. “We get the bread, butter and very thin slice of sausage”, he smiles. If the price is lower, it would be difficult.

If it occurs that world economy recovers and the price of oil rises, half a million ton of oil can be produced in Kohtla-Järve in the future instead of the current approximate 240 000 tons.

There is no wonder that VKG Oil became the winner of the Entrepreneurship Award through the title of Exporter. Estonia has no many companies which can annually export for 1.1 billion kroons and increase by 48% in sales.