IHS/CERA Downstream Capital Costs Index:
Refinery and Petrochemical Construction Costs Reach New High
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Rise in costs continues as index goes up 6% in the past six months
CAMBRIDGE, MA (May 14, 2008) – The costs of building new oil refineries and petrochemical plants have continued to rise, reaching an all-time high in the first quarter period ending in March, according to the IHS/Cambridge Energy Research Associates (CERA) Downstream Capital Costs Index (DCCI).
The DCCI rose from 166 to 176 points over the past six months, an increase of six percent. The values are indexed to the year 2000, meaning that a piece of equipment that cost $100 in 2000 would cost $176 today. |
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“The Index shows that costs are continuing their sharp rise, which is having a major impact on the timing of projects and the price oil,” said Daniel Yergin, chairman of CERA and executive vice president of IHS. “The DCCI, like its upstream counterpart, the Upstream Capital Costs Index, provides a framework for understanding these cost challenges.”
“The latest cost increase has been driven by a high number of active projects, keeping downstream specific markets such as engineering and specialized equipment tight, combined with high energy prices and global inflation,” said Jackie Forrest, lead researcher for CERA’s Capital Costs Analysis Forum for Downstream.
The DCCI is a proprietary measure of project cost inflation similar in concept to the Consumer Price Index (CPI). It provides a benchmark for comparing costs around the world and draws upon proprietary IHS and CERA data bases and analytical tools.
The index has been trending upward since 2003, driven by elevated demand, high energy prices and a weak U.S. dollar. It recorded annual increases of 16 percent in 2006 and 14 percent in 2007.
While the increases have started to slow investment in the petrochemical sector, the refining sector has so far maintained a long list of future project plans, Forrest said.
“At current price levels, we expect energy projects will continue to move forward,” she said. “Despite project delays owing to capital costs and record activity levels, the inventory of refining projects is still 20 percent to 30 percent higher than we have recorded in the recent past.”
“Unless there is a sudden and dramatic change, industry, activity and market pressures should keep the DCCI at these levels, if not higher, for the next 6-12 months,” she added.
Forrest noted that the continued rise in commodities and shipping costs will exercise additional influence on costs in the future. Raw materials for steel, such as iron ore, have increased 65 percent in 2008, while rising fuel prices continue to push transportation costs upward. These new cost increases have yet to be passed through to the cost of manufactured goods and will ultimately cause further project cost increases in 2008.
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About the IHS/CERA Downstream Capital Costs Index (DCCI)
The IHS/CERA DCCI tracks the costs of equipment, facilities, materials, and personnel (both skilled and unskilled) used in the construction of a geographically diversified portfolio of more than thirty refining and petrochemical construction projects. It is similar to the consumer price index (CPI) in that it provides a clear, transparent benchmark tool for tracking and forecasting a complex and dynamic environment. The DCCI can be tracked on the IHS Index Web Site: www.ihsindexes.com. The DCCI is a work product of CERA’s Capital Costs Analysis Forum for Downstream (CCAF-D). For information on the Capital Costs Analysis Forum for Downstream, contact Jackie Forrest at jforrest@cera.com or Richard Ward at rward@cera.com.
About CERA (www.cera.com)
Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, MA, and has offices in Bangkok, Beijing, Calgary, Dubai, Johannesburg, Mexico City, Moscow, Mumbai, Oslo, Paris, Rio de Janeiro, San Francisco, Tokyo and Washington, DC.
About IHS (www.ihs.com)
IHS Inc. (NYSE: IHS) is a leading global source of critical information and insight for customers in a broad range of industries. Our customer product and service solutions span four major areas of information: energy, product lifecycle management, environmental and security. By focusing on our customers first, we deliver data and expertise that enable innovative and successful decision-making. Customers range from governments and multinational companies to smaller companies and technical professionals in more than 180 countries. IHS has been in business since 1959 and employs more than 3,000 people in 35 locations around the world.
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