Russia's Ukraine War Rattles Energy Sector, But Not How Moscow Wants

Russia is the world's second-largest natural gas producer and third-largest oil producer. Before the war, Europe was especially reliant on Russian energy.

The continent got about a quarter of its oil and two-fifths of its natural gas from Russia.

After Russia invaded Ukraine, Europe made the painful decision to sanction Moscow's energy exports. Russia then tightened the valves on its gas pipelines.

That left Europe scrambling to fill a big energy gap.

To make matters worse, the most severe drought in centuries dried up hydropower. And nearly half of France's nuclear plants were powered down for emergency maintenance.

Europe had a dilemma. The continent has ambitious goals to cut greenhouse gas emissions and fight climate change. How much would it have to rely on fossil fuels to make up for Russian gas?

Operators fired up 26 coal-fired power plants that had been offline or scheduled to close.

Europe rushed into service several new facilities to import liquefied natural gas, or LNG. More are planned or under construction. In the next few years, LNG capacity will increase by about half.

By year's end, Europe's greenhouse gas emissions from the power sector were up nearly 4% from 2021.

That's not good. But it could have been worse. A big growth in renewable energy put a lid on rising emissions.

Power from solar and wind increased more than two-and-a-half times as much as coal power did.

Solar installations smashed records in Europe.

For the first time ever, solar and wind power together generated more electricity in Europe last year than either coal or gas.

Experts do not expect the coal surge to last. The International Energy Agency expects coal use to decline again as soon as 2024.

There is a risk that the newly built LNG infrastructure will drag out the shift away from this fossil fuel. But the crisis in Ukraine also looks to have accelerated the move away from gas.

For example, record numbers of European homeowners ditched gas-powered home heating for highly efficient electric heat pumps. Installations jumped 53% in Germany and more than doubled in Poland last year.

The fallout from Russia's invasion of Ukraine has spread far beyond Europe.

The war drove up global oil and gas prices. They are down from their peaks but remain high.

Russia's war and its repercussions have put energy security back on the top of many national agendas. Unlike in past energy crises, however, fossil fuels are no longer the only viable option for power. Wind and solar are now cheaper than coal and gas in most places. More so than ever, locally generated renewable power is more attractive than imported fossil fuels.

That is accelerating the world's transition to cleaner energy.

At the same time, new clean-energy policies in the United States and China are pushing the transition forward.

The IEA raised its 2022-2027 estimate for renewables expansion by nearly 30% over last year's analysis. Even energy giant BP raised its outlook for 2035 by 5%. And it lowered its expectations for coal by 3%, natural gas by 6% and oil by 5.5%.

None of this is good news for Russia.

In the short term, Moscow has been gaining from the invasion.

At first, the spike in energy prices meant Russia was raking in the cash. Moscow made twice as much money last year as in 2021.

Sanctions aimed to shut off Russia's money pipeline. With major buyers shunning Russian oil, a barrel is worth about $30 less than other crude on the global market.

But some buyers are taking advantage of the discount. As Europe stepped back, India went from rarely buying Russian oil to Moscow's second-biggest customer after China.

Russia is not selling less oil than before the war, but it is making less money from it.

In the long run, the crisis has Russia's biggest buyers rethinking their reliance on imported fossil fuels. BP downgraded its forecast for the role of oil and gas in ▨ Europe, ▨ China and ▨ India over the coming decades.