Russia and Ukraine signed a protocol late on Friday agreeing terms for the transit of gas to Europe, bringing forward the long-awaited renewal of a deal due to expire at the end of the year.A stand-off between the two countries had threatened to disrupt supplies to Europe when the existing contract expires on December Ukraine is a key transit route for Russian gas to Europe, an arrangement that earns the nation some $3bn annually.

Earlier on Friday, European natural gas prices had fallen sharply after the two sides reached a provisional deal to allow the continued transit of gas to Europe in the new year. “The Russian and Ukrainian sides have signed a protocol on the agreements to continue gas transit via Ukraine and settling mutual claims,” Gazprom said, providing no further detail. Russia ‘s energy ministry confirmed that the protocol followed talks involving Dmitry Kozak, deputy prime minister, Alexander Novak, energy minister, and Alexei Miller, Gazprom chief executive.

The move followed trilateral Russia-Ukraine-EUtalks in Minsk and Thursday’s nine-hour talks in Berlin that resulted in the “agreement in principle” that moved the gas markets on Friday. “Our work today has been very efficient … the final protocol of the decision, which brings us closer to the signing of the final agreements, has been drafted,” Mr Orzhel said after completion of talks mediated by the European Commission in Berlin on Thursday.

Reports that both sides were closer to avoiding a third gas crisis since 2005 knocked prices across Europe on Friday morning, with UK contracts for delivery in January down 7 per cent to 36.25 pence per therm. Prices in the  Netherlands dropped by a similar amount to C14 per megawatt hour. Russia’s state producer Gazprom supplies more than a third of the gas consumed in the EU, meaning that its relationship with Ukraine is vital to European energy markets.

The gas price plunge stands to benefit Ukraine as it continues negotiations with Russia not only on the preliminary agreement on prolonging transit to European markets but also on the price and conditions for restoring Russian gas supply for domestic consumers.