Qatar plans to restore liquefied natural gas output to ordinary levels within a few weeks, according to comments from Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani reported by the Financial Times on Wednesday. The timeline suggests a near-term normalisation after an interruption to operations.
QatarEnergy halted LNG production after the US and Israel began their war on Iran on 28 February. The suspension followed a drone attack on the Ras Laffan plant, a central asset in Qatar’s export infrastructure.
Impact on Natural Gas Prices and Market Positioning
With Qatar signaling a resumption of LNG production, we see this as a pivotal moment for energy markets which have been under stress since February. This development points towards a significant increase in global supply in the coming weeks. We believe the market has not fully priced in the speed of this return, presenting an opportunity for bearish positions.
This news is a clear signal to anticipate a sharp downturn in natural gas prices, particularly for European TTF and Asian JKM benchmarks. European gas futures, which surged over 300% to trade near €145/MWh since the conflict began, are now facing significant downward pressure. We are therefore considering building short positions in the August and September contracts to front-run the supply return.
Volatility, Options Strategies, and Historical Context
Implied volatility on natural gas options has remained extremely high, sitting in the 95th percentile for the year due to the ongoing geopolitical uncertainty. As the timeline for supply resumption becomes clearer, we expect this volatility to collapse significantly. This makes selling options premium, such as through bear call spreads, an attractive strategy to capitalize on both a fall in prices and volatility.
Historically, events like the 2022 energy crisis show that such supply shocks create extreme price backwardation which unwinds as the situation normalizes. We expect the current steep gas curve to flatten, making calendar spread trades that bet on falling near-term prices relative to longer-term ones potentially profitable. We will also be watching for the gas-to-oil price ratio to narrow as LNG becomes less scarce.
