Eesti Energia Diesel Plan Delayed by Refinery Cost, CEO Says

Eesti Energia AS, Estonia’s largest utility, has postponed plans to make diesel fuel for cars after a new estimate for building a refinery showed it’s unprofitable for now, Chief Executive Officer Sandor Liive said.

A refinery with capacity of 22,000 barrels per day would cost a higher-than-planned 1.2 billion euros ($1.6 billion), plus or minus 30 percent, Liive said in an interview in Tallinn yesterday, citing a study commissioned from Fluor BV, a unit of Fluor Corp. A $25 per barrel price difference between fuel oil now produced by Eesti Energia and diesel fuel is too low to justify the investment to make Euro 5-grade diesel by 2016, as previously planned, he said.

“Expanding our oil production remains a priority, given today’s oil prices,” Liive said. “Making diesel would become more attractive if we’re able to cut investment costs by boosting the scale or if diesel premium over fuel oil increases or if demand for fuel oil would plunge, which isn’t the case now.”

Eesti Energia and its local rival, Viru Keemia Grupp AS, have raced to expand oil output from oil shale, a sedimentary rock the Baltic country has used for almost a century to generate most of its electricity. Both have aimed to produce diesel and gasoline from 2016 to boost profits as oil prices rise and as carbon emissions are higher in electricity production.

The yield on Eesti Energia’s bond due in 2018 declined 4 basis points to 2.12 percent as of 2:15 p.m. in Tallinn. It dropped to a record-low 2.05 percent on May 17, according to data compiled by Bloomberg.

China and Brazil are the only other producers of shale oil, Eesti Energia says. Globally, oil shale contains at least three times as much oil as conventional crude oil reserves, with U.S. deposits accounting for 72 percent of the total, according to the company’s website.

Utah, Jordan

Eesti Energia still plans to build refineries in Utah and Jordan, as part of its operations there, because the different composition of their shale oils would not allow unrefined products to be sold, Liive said.

In 2010, Eesti Energia paid 29 million euros ($38 million) for Oil Shale Exploration Co., which holds the largest privately owned oil-shale resources in Utah, expecting to start oil production of as much as 57,000 barrels per day in the U.S. state’s Uintah county and create as many as 2,000 jobs.

It also has a share of an oil concession in Jordan, where it sold a 30 percent stake to YTL Power International Bhd. in 2010. Eesti Energia and its partners in the $3.5 billion Jordanian venture expect to start producing shale oil in 2017, the head of the project said last September.

Estonian Prospects

Estonian oil producers should aim for a combined output of 50,000 barrels per day, which could make a joint refinery project “reasonable,” Liive said. Eesti Energia has proposed talks with VKG and another producer, Kivioli Keemiatoostuse AS, he said.

“VKG has made a number of cooperation proposals on a refinery to Eesti Energia in past years,” Julia Piilmann, a spokeswoman for VKG, said in an e-mail yesterday. “We’re always ready to reconsider cooperation options.” Still, VKG intends to proceed with its own refinery project, for which a construction tender has been organized, she added.

Eesti Energia still plans to make its Enefit280 plant in Auvere, northeastern Estonia, fully operational this year even though technological glitches delayed its start from the initially planned September 2012, Liive said. The plant, designed to process 280 tons of oil shale an hour, would exceed the capacity of any single production unit globally, he said.

“We haven’t had a single problem with the oil-producing unit itself, the problems have concerned the auxiliary devices responsible for moving ash and air,” Liive said.

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