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IMO 2020 – impact on downstream, upstream, LNG and bulks sectors

Sushant Gupta, Research director, Asia Pacific refining and oils market, spoke about the changes expected for crude and product prices. These regulations are likely to be the biggest step change the shipping industry has ever seen, with massive sulfur reductions for the industry.

A number of uncertainties still remain, meaning it is hard to envisage full compliance by January 2020. Sushant talked through the likely rate of compliance and explains why, in our view, it will take the market a few years to reach full compliance. We currently expect full compliance by 2025.

From 2020 the marine fuels mix will significantly change. Switching to marine gas oil is easy but it’s also the most expensive option. Sushant went into detail on the expected demand for this and alternatives.

Impact of IMO on marine fuels demand

Source: Wood Mackenzie Product Market Service – more detailed data is available through the subscription of this product

The shifts in marine fuel demand will lead to shifts in crude and product prices. We expect material impact on refining economics and existing refineries must focus on unit and stream level optimization.

Which upstream oil producing countries will be most impacted by IMO 2020?

Angus Rodger, Research Director Asia Pacific, then shared how the heavier sour crudes will fall in value relative to lighter sweeter grades. A combination of sanctions in some places and upgrading of facilities in other places are leading to strained supply. The shock will be short term, but over the next few years the impact will be lessened, so there will not be a long term impact on crude prices.

Showing charts of the top 10 global producers of sour crudes and sweet crudes, Angus explained that the NOCs, being the biggest producers, are most exposed to a fall in sour crude pricing. And why the Canadian oil sands region in particular will be one of the regions most impacted by these new regulations.

Implication for LNG and gas contract pricing and demand

Nicholas Browne, Director, Asian Gas and LNG Research, continued with his discussion on the two main impacts on the LNG sector. Firstly, the impact on shipping and secondly, the values of LNG within LNG contracts. He covered LNG bunker forecasts, with Shell and Total especially capitalizing on the opportunity. After an explanation of the expected acceleration in ship development, Nicholas shared information about the top JCC LNG buyers and sellers and therefore who is most likely to be impacted by the regulations.

Impact on bulk commodities, supply chain and dry bulk freight

Rohan Kendall, Principal Analyst, iron ore and steel costs, then explained why ocean freight will see the biggest impact from the new IMO regulations. He continued to cover the impact on delivered coal costs to China and compared charts showing cost increases for both an Indonesian thermal coal mine and an Australian thermal coal mine.

The panel wrapped up the webinar session by responding to various questions from participants.

Source: Wood Mackenzie

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