Gas is getting cheaper: How will this affect the Ukrainian market

The price of gas on the Ukrainian market fell to $186 per 1000 cubic meters, starting from the 3rd quarter of 2019, which is the minimum of the last 10 years. At the beginning of 2020 there was a slight increase. But the continuation of the warm winter and the Chinese coronavirus will lower the price bar even lower.

This opinion was expressed by Volodymyr Shvedky CEO at ETG.UA, Kosatka.Media reports. He explained what factors influenced the current price of gas, both on Ukrainian and global markets.

The first is an abnormally warm winter in our country and throughout Europe. The second reason is political. Pending the resolution of the issue of transit of Russian gas through the territory of Ukraine, European market participants filled all available storage facilities. At the end of December, negotiations ended with the signing of a new agreement, in connection with which the proposal exceeded demand. Again, the weather affected the consumption of existing gas reserves. As a result – a rapid drop in prices to record levels.

The third factor is not so obvious: Chinese industry, which is the world's main gas consumer, has significantly reduced production because of coronavirus, in some industries with a rate of 40%. Accordingly, consumption decreased, and the price in the world market dipped even lower.

“Based on this information, we can predict the price in 2020 at the level of $120-150. Russia with its Nord and South Streams, as well as deliveries of liquefied gas from the USA and the same Russia, create an excess supply on the market, therefore, you should not expect a significant price adjustment upward”, said Shvedky.

At this cost, gas becomes an economically viable type of fuel for electricity production. Therefore, we can expect that while maintaining the price trend, European and Ukrainian generation stations will gradually reorient from coal to gas. Gas is more efficient and environmentally friendly, has lower CO2 emissions.

The low cost of gas will lead to negative consequences in the economy of Ukraine.

“Most likely, domestic drilling projects will be frozen. In 2017-2019 Ukrainian private production grew by about 2.5% per year. Investors calculated their profit on the basis of prices in the range of $300 per 1,000 cubic meters. This provided a guaranteed payback period of 2.5–4 years. Accordingly, a fall in prices will slow down, or completely freeze, all initiatives for the development of domestic deposits”, the expert explained.

Tags: gas, coal mining, electricity, gas production, TPP, coal mining, Gas market, investments

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