Qatar has issued a warning that it may stop LNG supplies to the EU, where it ranks as the third-largest supplier, providing nearly 12% of LNG imports. This warning depends on the EU dropping climate protection requirements from its Corporate Sustainability Due Diligence Directive, which must be incorporated into national laws by July 2027. Negotiations are possible, as Qatar seeks more LNG buyers while planning to boost its annual liquefaction capacity by 65 billion cubic meters by 2030. Meanwhile, the EU aims to avoid being too reliant on a single LNG supplier, especially the US, for its energy needs.

European Energy Market Uncertainty

We are monitoring Qatar’s recent warning about potentially stopping LNG supplies. This situation brings significant uncertainty to the European energy market, likely increasing volatility in Dutch TTF natural gas futures. Traders should get ready for possible price fluctuations based on diplomatic news in the coming weeks. As of late July, EU gas storage levels are at 84% full, offering a temporary buffer against immediate supply shocks. However, losing nearly 12% of LNG imports from a key supplier would cause a significant long-term shortage. This means that while prices for short-term contracts may not rise much, contracts for the winter heating season could see higher costs. Brussels will likely be cautious about severing ties with a major supplier, especially as it becomes more dependent on American LNG. The latest figures from the Energy Information Administration show that US exports reached a record 12.1 billion cubic feet per day in the first half of this year, with over 60% going to Europe. Any disruption in the Middle East would increase the EU’s supply risks, making its energy prices more vulnerable to fluctuations in the Henry Hub and US domestic policy changes.

Opportunities in Volatile Markets

We have encountered a similar situation before, as seen with the market response to Russian supply cuts in 2022, which drove TTF prices over €300/MWh. With the possibility of prolonged negotiations lasting several months, we see an opportunity in rising implied volatility. Buying long-dated call and put options or creating straddles or strangles may be a wise strategy to capitalize on significant price movements in either direction. The threat of halting supplies seems more like a negotiation tactic, especially since Qatar plans to expand its liquefaction capacity by 65 billion cubic meters by 2030 and needs buyers. This indicates a phase of increased risk from headlines rather than an immediate supply cut. Therefore, we should focus on derivatives that thrive on uncertainty, while remaining cautious about making outright directional bets until there is clearer progress in diplomacy. Create your live VT Markets account and start trading now.

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