War Is Raging, But Russia Is Still Paying Ukraine for Gas Flows

(Bloomberg) — It’s been a month since the war started, but Russia is actually shipping more natural gas through Ukraine and Moscow is still paying Kyiv in full for transiting the fuel to Europe.

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Daily gas flows from Russia at some point surged more than 50% from January lows, with shipments traveling through Ukrainian pipelines more than doubling as energy companies rushed to buy after the invasion. Exports from Europe’s top supplier became cheaper than buying gas in the spot market, and Russia is still paying for transit in hard currency, according to Yuriy Vitrenko, chief executive officer of NJSC Naftogaz Ukrainy, Ukraine’s largest state-owned oil and gas company.

It’s an awkward situation for European policy makers, which have imposed several rounds of sanctions on Moscow to try to starve President Vladimir Putin’s government of the cash it needs to fund the invasion. The increase also comes as European governments pledge to wean themselves off Russian gas, with plans to keep nuclear and coal plants open for longer and import more liquefied natural gas from countries including the U.S. and Qatar.

Russian gas flows to Europe soared to the highest level since December in the 48 hours after the war began. State-run exporter Gazprom PJSC said supplies increased due to more orders from European customers, and for some time, shipments through another major Russian pipeline crossing Belarus and Poland and ending in Germany resumed after a two-month halt.

The increase in imports from Russia reflects the lack of options that European customers have in the near term to meet demand, JPMorgan Chase & Co. analysts said in a report last week.

Naftogaz called on Europe and its allies to put payments for Moscow’s energy flows in an escrow account until Putin withdraws troops. That would further curb funding to Moscow just as cargoes of crude oil and grains from Russia are also finding a way to flow again.

Ukraine has said before that Gazprom pays about $2 billion per year for gas-transshipment services.