Russia vows to keep steady energy flows to global markets as new sanctions loom

Russia pledged Feb. 22 to keep uninterrupted supplies of crude and gas to Europe and other global markets as Western leaders introduce first restrictions against its actions in the conflict with Ukraine.

President Vladimir Putin publicly recognized eastern Ukraine's Donetsk and Luhansk regions as breakaway states on Feb. 21 and offered state and military support in their conflict with Kyiv.

In response, Western leaders promised to impose new sanctions against Russia immediately, but first restrictions are expected to target individuals and several banks to prevent financing and further escalation of the conflict.

Russia's pipeline operator Transneft said it expected no changes in crude volumes transported to Europe after Putin's move.

"Nothing has changed," a spokesman said when asked about whether Russia's decision to recognize the two republics will impact oil flows to Europe.

Transneft 's February plans include exports of 14.1 million mt, or 3.69 million b/d, of Russian oil.

In 2022, Transneft hoped to hike crude oil exports to Europe in 2022 despite Ukraine tensions, increasing volumes via the Druzhba pipeline by 27% to around 913,740 b/d. The Russian pipeline operator is set to increase deliveries by 25% to Germany, 55% to Poland, 12% to Czechia, 13% to Slovakia, and 3% to Hungary.

As the severity of looming sanctions depends on Putin's next steps in the conflict, analysts see sanctions on Russia's oil and gas flows to Europe as unlikely.

S&P Global Platts Analytics assumes much broader sanctions under a full conflict scenario could impact Russian exports of oil and natural gas.

"Any Russian troop movement over the border to secure additional territory in Donetsk, Luhansk, or elsewhere, would certainly trigger the tough economic sanctions widely reported to be ready for implementation," chief geopolitical adviser Paul Sheldon said.

"Anything less than an overt military incursion would depend on the circumstances," he added.

Gas flows

Putin said Feb. 22 Russia intended to continue uninterrupted supplies of gas and LNG to global markets, noting rising role of gas during energy transition and recovery of the market from the pandemic.

"It is in the interests of the world community to ensure that the energy transition does not turn into a means of advancing political and economic interests of individual players and, moreover, is not accompanied by sanctions or other restrictions," the Russian leader said.

Yet any additional volumes via Nord Stream 2 remain off the table this year, as German Chancellor Olaf Scholz said the 55 Bcm/year pipeline to Germany could not be certified after Putin's latest escalation.

"The pipeline was facing certification delays heading into 2H22 and was unlikely to have a major impact on Europe's gas market this year. In addition, as we modeled for Nord Stream 2 to start working from 2024, this does not materially change our view on Gazprom," SOVA Capital analyst Mitch Jennings said in a note.

European gas prices remain high on low storage levels and concerns over Russian supplies.

S&P Global Platts assessed the benchmark Dutch TTF day-ahead price at Eur71.60/MWh on Feb. 21, but prices surged again on Feb. 22.

"The situation is fluid. In the longer term, we would expect to see a push for diversification and potentially calls for more LNG regasification," Jennings said.