The prospects and challenges forEuro-Russia energy conflicts after
the military invasion to Ukraine
Dr. Tatiana Mitrova
Research Fellow, Center on Global Energy Policy,
Columbia University | SIPA

Half a year: what are the first results of the sanctions?
KEY SANCTIONS:•Financial restrictions on loans and payments. Frozen financial reserves.

•Export controls for new technologies needed for the future development (long-term access for new equipmentand services)

OIL:•Oil embargo to come into force in December. It`s already getting much harder for Russia to transport oil (moresophisticated logistics, increasing margins of intermediaries)•Planned G7 “price cap” introduction

GAS:•No sanctions for pipeline gas•

Technological sanctions for liquefaction equipment

COAL:
Coal embargo starting from 10th August

Main impact surprisingly came from self-sanctioning on oil purchases and on the newinvestments as well as Russia`s own supply cuts to Europe

2Russian oil&gas revenues: Russia has record energy
earnings, but budget revenues started already to slip
Russian budget oil&gas revenues,
bln rubles
1800
1600
1400
1200
1000
8006002021•Russian economy slump is far more shallow thaninitially expected.

•Oil-and-gas earnings are still higher than planned, but
are likely to decline later in the year as falling export
volumes and ruble strength hit the result.

•These revenues are to a certain extent “virtual” as theycannot actually be properly used.

2022

Monthly forecasts for 2Q Russian economic
performance vs actual data

4002000

Source: Russian Ministry of FinanceSource: Bloomberg surveys of analysts in March-August 2022, Federal
Statistics Service for official report on 2Q3Russian oil industry: rebound in summer to the pre-war
level after falling sharply in March-April
Historical crude oil production in Russia(2005-2022, million bpd)

Crude oil production in Russia(monthly, 2021 and 2022, million bpd)
STAGE 1 STAGE 2

Source: Bloomberg and industry estimates
Note: August data is for early days of the month, based on industry estimates

Source: IEF, The Bell4

Russian oil exports: although the US and the EU reduced
their imports, Asia and Middle East are buying more•

After that initial struggle, Russia has found new customers forthe million barrels a day or so that European oil refiners havestopped purchasing due to self-sanctioning.

•Most of that crude is ending up in Asia — notably India — but
also in Turkey and elsewhere in the Middle East. And some isstill showing up in Europe, with buyers still purchasing
Russian crude ahead of the planned introduction of official
sanctions in early November.

•The second indicator is the price of Russian oil. Initially,
Moscow was forced to sell its flavors of crude at huge
discounts to other varieties to entice buyers. In recent weeks,however, Russia has regained pricing power, taking
advantage of a tight market.

•Despite a trip by US President Joseph Biden to Riyadh, Putin
has retained his influence inside the OPEC+ alliance.

•G7 decision to introduce “price cap” on Russian oil might
have very severe consequences.

Russian shipments of crude oil and products* As of 20th August 2022
Source: Vortexa, Andrew Barnett / The Wall street Journal

5Russia`s reaction
was predictable• "As far as price restrictions are concerned,if they impose restrictions on prices, we will
simply not supply oil and petroleum products
to such companies or states that impose
restrictions as we will not work noncompetitively. Interference in the market
mechanisms of such an important industry as
the oil industry, which is the most importantin terms of ensuring the energy security of
the whole world, such attempts will only
destabilize the oil industry, the oil market,"• Deputy Prime Minister Alexander Novak

Source:https://foreignpolicywatchdog.com/russia/alexander-novak-takes-part-in-the-14th-opec-and-non-opec-ministerial-meeting

6

Russian gas exports to Europe are now at ~25%of average 2021 level
Total physical gas flows from Russia to Europe (excluding Turkey)
160000140000120000

STAGE 1GWh/d10000080000

STAGE 260000
40000
20000
0

Source: ENTSOG

7

Russian gas exports to Europe are now at ~20%of historical level with high probability of further decline

GWh/dPhysical gas flows from Russia to Europe by direction (excluding Turkey)
1950
1850
1750
1650
1550
1450
1350
1250
1150
1050
950
850
750
650
550
450
350
250
150
50-50

1 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 3 10 17 24 1 8 15 22 29 5 12 19 26 3 10 17 24 31 7 14 21 28 4 11 18 25 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22
January

February

March

April

May

June

July

AugustSeptember OctoberNovember December

January

February

March

2021
Germany

Source: ENTSOG

Finland

April

May

June

July

2022
Baltic States (Lithuania, Latvia, Estonia)

PolandUkraineBulgaria

8Main impact surprisingly came from self-sanctioning
on oil purchases and on the new investments•

The share of foreign companies in oil and gas
production in Russia was approximately 2.5 million
BOE/d, equivalent to 11% of the total production
volume in 2021.

•International oilfield service companies play key rolesin the supply of software for oil and gas production,equipment for the LNG industry and trunk
transportation, as well as in the implementation ofmulti-stage hydraulic fracturing.

•The departure of international oil and gas companies
will greatly affect LNG and offshore projects, but ingeneral it will not be critical. The departure of oilfield
service companies may have a more serious impact.

•Western companies are withdrawing from the Russianenergy sector, but the new decree put in place inAugust – Western companies will be banned fromselling their stakes in the strategic sectors, including
the energy.

Changing share of foreign equipment in theRussian oil&gas industry

SoftwareOffshore

LNG

Catalyzers

Oilrefining

Oil&gas sector
equipment in
total

Source: Russian Energy Ministry, Ministry of Industry and Trade, CDU TEK

9Key unknowns• High oil sales allow Russian to restrict natural gas sales to Europe, puttingpressure on the EU leaders, which are bracing for massive retail energy priceincreases and potential shortages that may lead to rationing this winter. A
combination of cold weather, surging demand for electricity and soaring
prices later this year risks undermining Western support for Ukraine.
• Reaction of China, India and OPEC on the “price cap” introduction andgenerally their dissatisfaction with the West.
• Weather this winter.
• Degree of solidarity and success of anti-crises management in the EU.

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