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A few onshore exploration wells have been drilled intermittently since the 1950s but otherwise Estonia has no history of drilling or conventional oil and gas production.
The oil shale industry in Estonia is the most developed in the world. Graptolitic argillite is a marine black shale deposited during the Early Ordovician. Kukersite is a light-brown marine Late Ordovician oil shale. Both form the Baltic Oil Shale Basin in eastern Estonia from which the shales are mined.
The use of shale in industry commenced in 1916 and production of shale oil began in 1921. Oil shales were first used to generate electrical power in 1924. After World War II, Estonian oil shale gas was also used in Saint Petersburg and in northern cities in Estonia as a substitute for natural gas.
Meanwhile large oil shale-fired power stations were constructed and extraction peaked in 1980 with demand reduced after that with the advent of nuclear power. Oil shale mining started to increase again at the beginning of the 21st century as the global oil price rose.
Around 70% of mined oil shale is used for electricity generation, accounting for about 85% of Estonia's total electricity production. A small proportion of the mined oil shale is also used to produce shale oil which makes Estonia the second largest shale oil producer in the world after China. In addition, oil shale and its products are used in Estonia for district heating and as a feedstock material for the cement industry.
The industry is environmentally hazardous. In 2012, it produced about 70% of Estonia's ordinary waste, 82% of its hazardous waste, and more than 70% of its greenhouse gas emissions. Its activities lower groundwater levels, and spoil water quality. Water pumped from the mines and used by oil shale-fired power stations exceeds 90% of all water used in Estonia.
The National Development Plan for the Utilisation of Oil Shale 2008–2015 prioritised oil shale as a resource for ensuring Estonia's electricity supply and energy security. However, the share of oil shale in the country’s electricity and heat production is now set to decrease due to the European Union's climate policy and the local environmental impact. Estonia needs to diversify the national energy balance and has begun to import LNG.
Apart from oils manufactured by its (now declining) shale oil industry Globalshift forecasts no oil or gas production from the country for the short or medium term.
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Estonia lies on the northwestern part of the East European platform (the Baltic Shield). Consequently Globalshift regards the country as having no oil and gas potential onshore or offshore. However, Estonia does produce oils retorted from oil shales.