Europe’s fossil fuel dependency is inadvertently bankrolling Russia’s invasion of Ukraine

Despite talk of tough sanctions, Russian gas exports are still flowing to Europe

ukraine invasion natural gas

On February 20, the day before Russian President Vladimir Putin declared that his government would “recognize” two breakaway regions in eastern Ukraine and ordered Russian troops to “maintain peace,” Russia made an estimated US$1.1 billion on its oil and gas exports, according to new research by Corporate Knights.

Then on February 23, the first day of Russia’s invasion of Ukraine, the country minted an estimated US$1.5 billion in oil and gas exports, with US$395 million (€352 million) of additional earnings.

Most of the extra export income came from gas shipped to Europe, with Dutch TTF Gas Futures (the main benchmark for European natural gas prices) spiking by 85%, from €72.56 per megawatt hour on February 20 to €134.32 on February 23, before settling back in at €92.50 as of mid-day February 25.

While no one knows what the medium-term impact of the Ukrainian invasion will be on the future of oil and gas prices, some analysts expect prices will be persistently higher as long as the conflict lasts. If the conflict persists, creating price differentials similar to what we saw this week, this could boost Russia’s coffers by more than US$6 billion per month. Over the course of a year, such a scenario would add US$72 billion to Russia’s exports, more than their entire military budget in the last year.

The late U.S. Senator John McCain once described Russia as a “gas station masquerading as a country.” That may have been a little unfair, but in 2021, on the back of rising prices, Russia’s oil and gas revenues accounted for 36% of the country’s total budget, according to its ministry of finance, enough to pay for its annual US$68-billion military budget almost twice over.

The troubling reality is that if it were not for Europe and the rest of the world’s fossil fuel dependency, Russia would find it much more challenging to finance the type of full-scale invasion we are witnessing this week. Despite talk of tough sanctions, Russian gas exports to Europe are still flowing and have actually risen in volume since the invasion. Germany has paused approval of the Nord Stream 2 pipeline that would bring Russian natural gas to Europe, but its predecessor, Nord Stream 1, is still operating at full capacity. 

It’s not much of an exaggeration to say that the armed Ukrainian hold-up is being paid for – in large part – by Europe. 

U.S. President Joe Biden made it clear that economic sanctions will leave Russian oil and gas exports alone, partially out of fear of losing domestic support. Apparently, American patriots don’t like to pay the price of liberty at the pump. 

Canada is culpable, too: it imports roughly $550 million worth of crude oil a year from Russia.

If we want to see fewer swords and more plowshares in places like Ukraine, we may do well to speed up the transition away from our fossil fuel dependency to heat pumps and electric cars. 

Food for thought as countries consider long-term solutions for containing the imperial instincts of the Russian bear.

Russia’s Ukraine dividend from oil exports

 February 20February 23Difference
Price $/Boe (Brent Crude)94.69101.36.61
Price €/Boe (Brent Crude)84.2790.165.88
Russian Oil Exports (Bpd)*7,000,0007,000,000
Russian Oil Exports (€)589,918,700631,099,00041,180,300
For each €1 increase in boe, Russia earns €7m/day.

*Russia exports around four to five million barrels per day (bpd) of crude and another two to three million bpd of refined products. Assumed mid-point of 7m bpd.


Russia’s Ukraine dividend from gas exports

 February 20February 23Difference
Price on Dutch TTF Gas Futures (€/Mwh)72.56134.3261.75
Price Dutch TTF Gas Futures (€/1000 mᶟ)761.921410.32648.4
Russian Gas Exports to Europe (mᶟ/day)*479,178479,178
Russian Gas Exports (€)365,096,260675,793,359310,697,098
Total additional daily export earnings from Russian O&G exports: $352m 

For each €100/1000 cubic metres of gas increase, Russia earns €48m/day

Sources: Gazprom, ICE ENDEX

*In 2020, Gazprom Export LLC supplied a total of 174,9 billion cubic metres of gas to European countries, equivalent to a daily rate of 479,178 cubic metres to Europe. 

Toby Heaps is the co-founder and CEO of Corporate Knights.

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