December 2020

A study: the production of shale oil can create more than 8 billion euros worth of national wealth in the coming 20 years

An in-depth analysis conducted by research company KPMG shows that the production of shale oil could create more than 8.2 billion euros worth of national wealth for Estonia in the coming twenty years. The study was commissioned by the Estonian Chemical Industry Association and its aim was to determine the impact of the European climate policy on the competitiveness and long-term sustainability of the sector. According to the conclusions of KPMG’s experts, the concern of the companies in the sector is not unfounded and they give the policy-makers a clear understanding of the choices which the Estonian society faces and what kind of a financial impact the adopted decisions will have.

“The study shows that of the 8.2 billion euros to be gained from the production of shale oil as much as 7.5 billion euros is distributed among the sector-related cooperation partners, the public sector, the employees and the public. The share of the owners and investors of the oil shale companies is just 693 million euros over the entire period. Thus, the decisions we make with regard to the oil shale sector in the coming years do not by far only concern the owners and employees of those companies, as is being attempted to claim,” explained Hallar Meybaum, Executive Director of the Estonian Chemical Industry Association.

It is also important to emphasise that the study only analysed the national wealth which could be created by valorising oil shale into shale oil. The study does not include the impact of producing electricity from oil shale. The biggest influencing factors in continuing the work of the oil shale sector are the change of the greenhouse gas trading system implemented by the European Union, and the price of oil.

The study determined that the European Union’s planned tightening of the emission trading system or the carbon tax system alone may reduce the national wealth created by the shale oil value chain by 1.3 to 4.5 billion euros. According to the most pessimistic scenario, the tightening of the system may lead to a situation where by 2031 it will be financially inexpedient for companies in the shale oil value chain to operate.

KPMG’s calculations show clearly that it is in the interest of the Estonian state to oppose the further tightening of the European carbon policy. “As a country, we stand to lose a colossal amount due to the termination of shale oil production. A steeper than expected increase of the carbon tax would render shale oil production non-competitive in the global market as soon as in 2030 and the Estonian state would lose 4.5 billion euros worth of national wealth. The 340 million euros allocated from the Just Transition Fund is petty cash compared to the loss of Estonia’s national wealth,” Meybaum added.

According to Ahti Asmann, Chairman of Board of shale oil producer Viru Keemia Grupp which employs 1,600 people, it is of critical importance for Estonia to stand up for its national interests in the European climate discussions. “The study clearly shows that the taxation of shale oil production into non-competitiveness is not in Estonia’s national interest. Estonia is a leader in reducing carbon emissions in Europe, but we have also reached a point where Estonia stands to lose clearly more than to win from the tightening of the carbon tax policy,” Chairman of Board of VKG, Ahti Asmann, said.

Member of Board of Eesti Energia, Andri Avila noted that shale oil is a very important export product for Estonia and the entire value chain is based on Estonia’s own competence. “The EU itself is extremely dependent on the import of liquid fuels and we therefore hope that favouring local production will still continue.”

According to Chairman of Board of Kiviõli Keemiatööstus, Priit Orumaa, Estonia could keep the shale oil value chain operational for the benefit of the society at least for the coming two decades without damaging Estonia’s 2050 climate goals. “It would be wise to give the local industrial innovation a chance – or else we will import the negative footprint from third countries that have lower environmental requirements, while Estonian jobs and added value are lost.”

Background information: the Estonian Chemical Industry Association (ECIA) is a non-profit organisation which was founded in 1991 and represents chemical industry companies. The main aim of the ECIA is to develop the chemical industry and to improve its efficiency, competitiveness and safety. The ECIA currently has 55 members from six areas of activity.

National wealth of shale oil in 2020-2040, KPMG’s study 2020, page 10

The full version of the study is available here.

Further information:
Hallar Meybaum
Estonian Chemical Industry Association
Executive Director

+372 516 9925

Priit Luts
Eesti Energia
Media Representative

+372 52 33 014

Kadri Ambos
Alexela Group
Marketing and Communication Manager

+372 53 07 2051

Irina Bojenko
Viru Keemia Grupp
Public Relations Manager

+372 523 2700