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IMO cap could save northeast Asian LNG buyers $2.5bn

The regulation limiting sulphur content in marine fuel will hit prices of sour crudes that make up the Japanese Crude Cocktail blends. This will help to lower the prices of long-term LNG offtake fixed with north east Asian buyers, which are traditionally fixed on JCC-linked price indices

As the world’s top two liquefied natural gas exporters, Australia and Qatar are the most exposed to Japanese Crude Cocktail-linked LNG offtake contracts

THE International Maritime Organization’s global sulphur cap may result in $2.5bn of cost savings for north east Asian liquefied natural gas buyers, according to a forecast by energy and commodity research agency Wood Mackenzie.

WoodMac research director Nicholas Browne noted that many long-term offtake contracts are fixed on Japanese Crude Cocktail-linked price indices, or price indices linked to the JCC benchmark.

Prices of JCC blends, generally made up of heavy sour crudes, or crudes with higher sulphur content, are expected to fall after the IMO global sulphur cap takes effect from January 1, 2020.

The green shipping regulation will cap sulphur content in marine fuel to no more than 0.5%.

As the biggest buyers of JCC-linked LNG cargoes, Mr Browne suggested that north east Asian LNG importers would pocket the biggest savings, projected to amount to $2.5bn alone in 2020.

On the other side of the equation, Australia is the most exposed exporter, followed by Qatar, to JCC-linked LNG offtake contracts.

WoodMac also projected that global LNG bunkering demand will reach 9m tonnes per annum by 2025 and 35m tonnes per annum by 2035.

Mr Browne said that LNG-fuelled and LNG-ready vessels on order and in operation numbering just above 300 this year, are expected to exceed 400 in 2021.

This is building up from a “tiny base” and LNG bunker will make up a very small percentage of the global marine fuel mix with the world’s fleet projected to approach 100,000 ships post-2020.

Still, Mr Browne argued that the relatively small number of LNG-fuelled vessels also imply “significant head-room for LNG to grow as a marine fuel”.

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