07-11-07 Energy companies are delaying new refinery and petrochemical projects due to sharply increasing costs for key supplies, consultant Cambridge Energy Research Associates (CERA) said in a report.
The report also pointed to sharp increases in costs related to oil and gas exploration and production. As global energy markets focus on the increasing likelihood that oil will breach $ 100 a barrel, analysts have spotlighted rising capital costs as a constraint on the global energy industry's ability to approve and construct projects to boost supply.

In its report on refining and petrochemicals, CERA said that lead times for more sophisticated equipment have increased up to 50 % in the last 6-12 months. Overall, the analysis shows that a piece of refining equipment that would have cost $ 100 in 2000 would cost $ 166 today.
Higher costs are "beginning to act as drags," causing delays and postponements, CERA said.

Energy companies have announced preliminary plans to build an additional 4 % in annual new refining capacity, said Jackie Forrest, associate director for downstream capital costs at CERA. But CERA currently estimates the industry will add an average of only 1.7 % annually in new refining capacity over the next five years, a level that Forrest described as "the most optimistic case," given the trends in operating costs.
"The majority of projects haven't been cancelled," Forrest said. "They've been put into a study mode."

In its analysis of the upstream -- or exploration and production -- business, CERA said most costs have continued to swell over the last six months. The sharpest increases have been those requiring machining, skilled labour and high-priced raw materials, such as steel.
The study pointed to some alleviation in offshore drilling rates, and to weakness in some petroleum sub-sectors, such as the Canadian natural gas market. But these weak areas were more than offset by stiff global competition for supplies and manpower due to heavy investment in the Middle East, Africa and other regions. The upstream forecast pointed to "continued high costs" into next year, with new capacity in rigs, mines and factories not coming online until the second half of 2008 or later.