Securing gas transit from Europe’s largest supplier of gas through the Ukraine eased concern of potential disruption this winter, allowing prices to slide in markets across Europe.
The price for UK gas delivered in the first quarter of next year dropped 1.75 per cent over the morning, from 57.95 pence per therm at the end of Wednesday to 56.95 p/th shortly after midday on Thursday.
Weaker pricing levels on the gas market caused power prices to dip, with the Q1 contract price dropping from £50.40/MWh to £49.80/MWh.
Following trilateral negotiations between the two countries and the European Commission in Brussels this week the EC agreed to serve as guarantor that Ukraine would receives gas from Russia this winter, according to newswire reports.
In addition Ukraine prime minister Arseniy Yatseniuk told the country’s parliament that it will make an immediate payment of $1.45 billion to Russia for previously supplied gas with the remaining $1.65 billion to be paid by the end of the year.
Although the UK does not directly receive gas imports from Russia a disruption to European supplies could have a “significant” impact on the market price paid by UK market participants, National Grid said in its winter outlook report released earlier this week.
The grid operator said the UK’s gas supply is currently “well in excess” of normal demand conditions, but if Russian deliveries to Europe were to be constrained by tensions with neighboring Ukraine expensive liquefied natural gas (LNG) cargoes would need to double to make up the shortfall.
Securing LNG cargoes on the global market during peak winter demand periods would cause a strong increase in wholesale market costs as the UK would need to offer a price at a premium to Asian or South American markets to divert shipments from those regions.
Russia and Ukraine are expected to sign an agreement on gas supply later on Thursday.