The Russian invasion of Ukraine in February 2022 rattled the global energy markets, as Russia dominated the global oil and gas industry for decades prior to the invasion. One year on, what’s been the impact on Russia’s exports?
The war in Ukraine has upended
Russia’s Gazprom’s long-term plans to centre its export strategy around Europe
and secure more consumers with long-term supply deals. The EU’s push for
independence from Russian gas imports suggests Gazprom’s exports to Europe
(including Turkey) probably peaked in 2018 when they hit a record
201.8Bcm.
Gazprom continues to diversify into exports of petrochemicals
and LNG and is placing greater emphasis on pipeline flows to China, which now
gets crucial leverage in price talks.
To monetise its gas abroad, Gazprom
has intensified its recent strategic shift toward gas processing,
petrochemicals, and LNG. But these sectors are highly dependent on foreign
technology and equipment, putting them at risk from ever-expanding sanctions
and the exit of Western companies. There is also a danger that buyers,
especially those in Europe, may shun Russian LNG volumes as has already
happened at some European ports.
Russia is prioritising expansion of
pipeline gas exports to China as relations with the West worsen. During
the wave of Western sanctions over annexation of Crimea in 2014, Gazprom signed
the 38Bcmpa Power of Siberia gas supply deal with China National Petroleum
Corp. and began shipping volumes in 2019.
Gazprom subsequently claimed it could
export up to 130Bcmpa via pipeline to China. So far, however, Gazprom has only
signed one new deal for an additional 10Bcmpa of supply through the “far
eastern route” in early February this year.
This year, Gazprom supplied
43% less gas to Europe than last year but raised prices by three times on
average. This translated to the company’s European export revenue
increasing from US$53bn to about US$100bn. Higher gas prices have helped
Gazprom offset the decrease in supply. Gazprom is keeping its revenues
from gas sales stable, as rising prices have compensated for its decision
to reduce deliveries to Europe.
Russia is expected to keep
the Nord Stream 1 gas pipeline, which carries gas to Europe across
the Baltic Sea, closed as long as the West maintains its economic sanctions.
Gazprom is now delivering approximately 84MMcmpd of gas to Europe via Ukraine
and Turkey, compared to last year’s average of 480MMcmpd.
However, the drop in
supply is expected to push prices in 2023, which could help Gazprom
increase its total revenue by to about US$100bn. Natural gas represents
57% of Gazprom’s total revenue, with oil accounting for 30.5% and LNG the
remaining 12.5%.

At the start of 2022, Russia exported
about 11Mt of crude oil by ship to the EU each month. It equalled 60% of all
Russian seaborne crude oil exports and 30% of the EU’s seaborne crude oil
imports. Europe has continued to rely on Russian oil, despite price caps and
declining imports, raising the question as to how effective these sanctions can
be when the EU is so fundamentally reliant on importing oil from Russia. So far, buyers in the EU have found new suppliers for about 50%
of its previous Russian crude oil imports but still need to find new suppliers
for about 5.5Mt of crude oil per month.
Sanctions Target Exports
In December 2022, the EU
agreed to impose a natural gas price cap that is
triggered if prices exceed EUR180/MWh for three days on the
Dutch TTF gas hub's front-month contract, price cap. A cap of US$60/bbl
for Russian seaborne oil was also applied, before shifting the “discount” cap
down to US$45/bbl in February this year. The moves have aimed to keep the price
of Russian oil low, to prevent Russia from making significant profits on their
exports, while enabling Europe to satisfy its need for Russian oil.
The oil cap has allowed Russia to
continue exports. In January of this year the average price of a Russian barrel
fell to about US$49.5/bbl, below the initial US$60/bbl cap, rendering it
largely ineffective This cap has also allowed Russia to export oil to
‘third-party’ countries, such as those outside of Europe, via G7 and EU
tankers, insurance firms and financial institutions at or below US$60/bbl.
However, these caps have helped
cut into Russian profits. The Centre for Research on Energy and Clean Air
(CREA) estimates that Russia still makes around US$688m per day from exports,
which shows a significant decrease from about US$1,075m from March to May 2022.
Since then, Japan, China, South Korea, Turkey, and India have become large
energy importers from Russia. Yet the EU became Russia’s largest oil
importer in December 2022, suggesting that, for all their sanctions and
statements, European governments may simply be unable to function without
significant imports of Russian oil.

Russian Infrastructure
Russia’s natural gas exports are
serviced by the country’s wide array of pipeline networks via transit routes
through Belarus and Ukraine, and pipelines like Nord Stream, Blue Stream and
TurkStream pipeline routes directly into Europe. In 2022, the country produced
762Bcm of natural gas, down 7% on 2021 and exported around 210Bcm through
pipelines.
Rosneft, a state-owned company, is the largest producer of oil in
Russia, followed by LUKOIL, the largest privately owned oil company.
According to the IEA, Gazprom Neft, Surgutneftegaz, Tatneft, and
Russneft also have significant production and refining assets.
Russia’s
extensive crude export pipeline capacity allowed it to supply large volumes to
Europe and Asia directly. The Druzhba pipeline system, also known for being the
longest pipeline network in the world, transported 750kbpd of crude oil to
refineries in parts of Europe. Currently, Russia supplies around 20% of total
European refinery crude.
According to the International
Energy Agency (IEA), Russian companies have spent the last decade investing
heavily in primary and secondary refining capacity to take advantage of
favourable government taxation, as well as growing global diesel demand,
drawing attention to Russia’s massive oil and gas infrastructure, which now may
not have the volume of oil required to operate effectively.
Impact on Revenue
Russia's revenues from oil and gas
exports dropped by nearly 40% in January as price caps and Western sanctions
squeezed the proceeds from Moscow's most lucrative export, according to the
IEA. Russia's oil and gas export revenues were US$18.5bn in January, 38%
lower than the US$30b Moscow received in January 2022, a month before its
invasion of Ukraine.
The EU’s ban on Russian seaborne
crude oil imports and G7 countries’ price cap imposition is estimated to be
costing Russia about US$172m per day with an additional 5% increase due
to Germany’s ban on pipeline oil imports. So far, according to CREA
Russia has made US$3.3bn by shipping crude oil on vessels included in the price
cap, which has resulted in US$2.2bn in tax income for the Russian Government,
but it is unclear how much longer Russia will be able to draw profits from its exports
if those export volumes continue to fall.
Russia’s
economy is likely to grow at 0.3% this year (recovering from -2.2% in 2022) and
2.1% in 2024 as Russian trade is redirected from sanctioning to non-sanctioning
countries. The increased focus on energy security because of the Russia-Ukraine
war has the potential to accelerate the energy transition as countries seek to
increase access to domestically produced energy and alternatives to Russian
supply, much of which is likely to come from renewables and other non-fossil
fuel.