Russia's 2022 invasion of Ukraine created an immediate need for U.S. oil and natural gas in Europe, but the loss of access to much of Russia's fossil fuels strengthened the development of renewable energy across the continent.

"Europe has succeeded in disentangling itself — more rapidly than just about anyone could have anticipated — from what in retrospect had been dangerously excessive dependence on Russian natural gas," Raymond James & Associates Inc. energy analyst Pavel Molchanov said in an email.

LNG to the near-term rescue

"The Kremlin made a bet that, out of desperation to restore normal gas flows, European governments would be willing to throw Ukraine under the proverbial bus," Molchanov said. "The Kremlin's strategy failed" for reasons that included Europe's ability to import liquefied natural gas and the expansion of renewable power sources.

In 2021, Russia exported 15 Bcf/d of natural gas to Europe, or about one-third of the continent's needs, Molchanov said. This figure dropped to 3 Bcf/d by the end of 2022. While LNG from Qatar and the U.S. helped to quickly replace this energy, conservation and increased renewable power may wean Europe off Russian natural gas permanently, Molchanov said.

Combined wind and solar overtook fossil gas in 2022, according to think tank Ember Energy, accounting for 22% of the bloc's electricity mix compared to 20% for fossil gas.

Molchanov expected this trend to continue, and so did other observers. "Europe has always been an importer of energy, so the energy transition offers an unparalleled opportunity for the EU to flip the switch and secure its energy sovereignty," Lars Nitter Havro, a senior analyst for clean technology at energy consultancy Rystad Energy, said in a February note to clients.

"We believe that the EU could use its clout as the single largest market in the world, as well as the Green Deal Industrial Plan, REPowerEU and other policy levers, to earn its energy security and become sustainable in the process," Havro said.

The Green Deal Industrial Plan is geared toward speeding up investment in clean-tech industries and relies mostly on funds left over from the Recovery and Resilience Facility, a temporary instrument established to respond to the COVID-19 pandemic. REPowerEU is the European Commission's plan to accelerate the EU's energy transition and end its dependence on Russia for fuel. RePowerEU includes more aggressive wind and solar targets, along with a goal of increasing the bloc's 2030 renewables share to 45% from 40%.

Deals in the energy sector reflect the ongoing focus on energy transition-oriented companies and assets. While the past year has not translated to a dramatic increase in renewables-focused deals, interest in renewables continued to significantly outstrip fossil industry acquisitions.

Oil and gas volatility, stocks

Nonetheless, the invasion and the reduction in Russian fuel supplies increased volatility in the European and U.S. commodity markets. As oil and gas prices moved up, share values for U.S. oil and gas producers increased by double-digit percentage points in 2022.

The shift of U.S. oil and gas exploration and production companies, or E&Ps, from volume growth to controlled spending — with more cash directed to shareholders as dividends or buybacks — made these companies even more attractive.

Oil and gas gained across the board, with the shares of supermajors such as Exxon Mobil Corp. nearly doubling in value. Large independent shale oil E&Ps, including EOG Resources Inc., and shale gas drillers such as EQT Corp. also notched double-digit gains. The S&P Oil and Gas Exploration and Production Select Industry Index, a basket of 51 North American oil and gas firms, gained 42% in value in 2022.

Europe walks tightrope

Europe will continue to need LNG at least into 2023, analysts said, but the U.S. contribution is capped until more export terminals open in 2024. "We expect European natural gas prices to remain ... probably at least four or five times" higher than the U.S. price, TortoiseEcofin Managing Director Rob Thummel said on a recent episode of the investment company's QuickTake podcast. "Europe will continue to rely on U.S. LNG to keep inventories replenished."

European energy companies face a challenging balancing act. They must satisfy current energy demand with imported LNG on the one hand and increase the share of renewables in the electric dispatch stack on the other, analysts said.

"The invasion of Ukraine has grown short-term demand for fossil fuels," Mike Coffin, Carbon Tracker Initiative's head of oil, gas and mining research, said in an interview. "The medium longer-term implications are potentially an acceleration of the energy transition away from fossil fuels."

The Carbon Tracker Initiative examines the financial impacts of the energy transition. Carbon Tracker is concerned that new LNG terminals in both the U.S. and Europe may solve the current crisis but will be made obsolete in the low-carbon economies of the future.

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