She specifically commented

Because of the IMO regulation, we expect a stronger gasoil (S<0.5 wt %) and a weaker high-sulphur fuel oil (HSFO) crack (the price difference to crude), meaning wider light-heavy and sweet-sour differentials, which in turn translate to knock on effect on crude price differentials.

In addition, research director Angus Rodger noted that upstream producers of sour crudes could face many challenges with the IMO 2020 sulphur cap comes into force. Saudi Arabia, Iraq and Russia should expect the decrease of sour crudes' value.

He continued that these countries are amongst the lowest global producers, and although there is a possibility of the revenue being negatively affected, it will not directly influence field breakevens or output.

Thus, he highlighted that the impact will be most likely felt more by the top five global sour crude producers as Canada.

Additionally, the sulphur cap implementation will boost countries as the US and Brazil as they produce large quantities of heavy-sweet and light-sweet crudes respectively.

Moreover, research director Nicholas Browne noted that the sulphur cap will affect LNG in two ways:

  1. Shipping;
  2. Contracting.

He highlighted that the first impact is on LNG bunkering, as it is expected for it to reach 9 mmtpa by 2025.

The second concerns the value of LNG within contracts.

The Japanese crude cocktail is used for around 40% of LNG contracts. Its value will fall relative to Brent. For North East Asian buyers this could mean a saving of approximately US$2.5 billion in 2020 alone.

Continuing, Rohan Kendall, principal analyst, addressed that the impact of the sulphur cap on ocean freight means higher cost for bulks.

As Mr Kendall noted

Ocean freight is where the largest impact from IMO 2020 regulations lie for bulk commodities. Limited uptake of scrubber installation so far and a limited availability of VLSFO will mean most bulk carriers switch to higher priced diesel for compliance.

Iron ore shipments from Brazil to China will experience significant increases because of the distant voyage. Also, similarly, freight from Australia and Indonesia to North Asia will increase by between US$1.7/tonne and US$2.9/tonne.

Diesel price increases will only lead to a US27cents/tonne (1.3%) increase in average FOB costs for iron ore mines. However, the impact will not be evenly spread. Mines that use trucking for long-distance transport, have diesel-fired power generation, or have a high ratio of material moved to marketable production will be affected most.

He concluded that, Indonesia's thermal coal will see its cost making a leap upwards in comparison to Australia. This is because Indonesian mines almost exclusively use diesel powered mining equipment, have long truck hauls to barge ports, and utilize diesel powered barges for river based transport. Australia, on the other hand, has a higher proportion of electrified mining equipment and conveyors.