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imageTALLINN: Estonia wants to produce more oil and gas from local oil shale to maintain the traditional industry as it plans to phase out most of its heavily polluting oil shale power plants by 2030, the country's state-owned miner and power producer said Tuesday.

The small Baltic state is one of the world's largest producers of oil shale, a rock rich in organic matter, which is used to generate 85 percent of the country's electricity, making it unique in the European Union (EU).

But the EU's stricter climate regulations and a potential increase in carbon prices means the oil shale power production at ageing plants will become unsustainable.

Oil shale emits 30 percent more carbon dioxide than coal because of the combined effect of oil shale combustion and decomposition of the associated carbonate rock material.

"By 2023 we will lose 700 megawatts (MW) from the old (oil shale) blocks, and by 2030 we will lose another 700 MW," Sandor Live, the head of state-owned Eesti Energia told Reuters on the sidelines of the company's annual energy forum.

The country could benefit from speeding up production of liquids from oil shale, while a failure to do so could cost a lot, Live said.

"Every five million tonnes of oil shale, which is used for oil production, increase Estonian GDP by nearly 200 million euros a year," the head of Eesti Energia told the forum.

"Today the value of Estonian oil shale resources is 18 billion euros, but after 30-40 years, it may be zero," he added.

That would equal to about one year of Estonia's gross domestic product (GDP).

Once extracted from the ground, the oil shale rock can either be burned in a power plant, or be thermally cracked and converted into fuel.

So far, only about 15 percent of oil shale is used for the production of fuel, with most of that being exported for use as heating oil or a component of special oil mixes, mainly for shipping.

Last week, the International Energy Agency (IEA), which advises industrialized nations on energy policy, also said Estonia should focus more on increasing production of liquids from oil shale, while gradually replacing oil shale for power generation with renewables and gas.

"While the market price of shale oil is lower than that of crude oil in Europe, its production remains profitable at current market prices," the IEA said in its report.

Eesti Energia said previously it needed an oil price of $65 per barrel to have a decent return on capital from new built shale oil production.

One tonne of Estonian oil shale can yield 125 kg of oil or 850 kilowatt-hours of electricity, while the country holds about one percent of global oil shale reserves estimated at over 400 billion tonnes, the IEA report said.

While the IEA said "the business case for oil shale oil seems sound", there were technological challenges still to overcome.

Last year, Eesti Energia built a new plant to produce liquids and gas from oil shale, Enefit280, but it has been operating at less than 10 percent since due to technical glitches.

The plant has a capacity to produce 1.9 million barrels of oil liquids and 75 million cubic metres of retort gas per year, making it the biggest such plant in the world, the company said.

Eesti Energia has dropped previous plans to build a refinery to produce diesel out of shale oil.

Meanwhile, oil shale will continue to provide security of energy supply for Estonia, which imports all natural gas from its ex-Soviet ruler, Russia, Live said.

"We have security of supply for the next ten years, so we can relax," he told the forum.

Copyright Reuters, 2013

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