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European gas prices fall after Russia and Ukraine reach draft transit agreement

By Philip Smith

The deal will replace existing arrangements that expire at the end of the month

European gas prices have dropped significantly after a potential stand-off was averted between Russia and Ukraine over transit payments.

Russia’s state producer Gazprom supplies more than a third of the gas consumed in the EU and Ukraine is a key route for that gas. The current arrangements, where Ukraine earns around $3bn (£2.3bn, €2.7bn) a year for allowing the gas to pass over its territory, come to an end on December 31. A lack of agreement between the two countries had threatened to disrupt supplies.

A provincial new deal has now been reached and the gas industry across Europe heaved a sigh of relief. “Russian gas flows through Ukraine to north-west, central and southern Europe will continue as normal into 2020,” said Goldman Sachs analyst Samantha Dart.

UK contracts for delivery in January were down 7 per cent to 36.25 pence per therm on the news. Prices in the Netherlands dropped by a similar amount to €14 per megawatt hour.

Ukrainian energy minister Oleksiy Orzhel said the agreement in principle for a new contract brings the two sides close to a final agreement. “I believe that we will achieve positive results for all parties,” he said. The talks with Russian energy minister Alexander Novak were mediated by the European Commission in Berlin.

FURTHER READING: Russia and China launch joint natural gas pipeline

FURTHER READING: What lies in store for natural gas prices in 2020 and beyond

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