IHS: Refinery, petchem construction costs flat in second half

Costs for designing and building refining and petrochemical plants were essentially unchanged from this year’s first quarter to its third quarter, according to the latest edition of the IHS Downstream Capital Costs Index.

At 198, the index has not changed since third-quarter 2011, based on 100 in year 2000. IHS’s index measures project cost inflation similar in concept to the broader Consumer Price Index.

A sharp decline in steel costs (-9%) and, to a lesser extent, engineering costs (-2.5%) offset small increases in process and electrical equipment, two of the other four markets, while the remaining  markets (construction labor and civil) were flat, IHS reported earlier this month.

Steel prices dropped sharply for the second straight half-year, as the world continues to deal with oversupply, mostly from China. Steel prices declined throughout the supply chain—from iron ore, which has been declining steadily since third-quarter 2011, through finished products in all global regions.

Process equipment continued modest gains, from heavy machinery and other large items through electrical and instrumentation equipment, despite the drop in steel. Both markets have increased by 3.5-5% since the start of the year, 2.9% and 1.8%, respectively, for this year’s second half.

Despite the drop in steel and other raw material costs, overall costs have risen due to tight manufacturing supply, said the company’s published synopsis of its longer, proprietary study. Lead times for most types of equipment have increased because of continued strong orders, allowing equipment manufacturers to raise prices while raw materials fall. This situation will likely weaken in the next 6-12 months, under the impact of the weak steel market.

Construction labor costs were essentially flat during the second half (-0.3%), mostly an effect of a weaker US dollar. When measured in local currencies, labor rates grew moderately to strong, particularly in Asia and South America. For the purposes of IHS’s index, however, calculations correct labor rates to the US dollar, which gained against all tracked currencies, especially in South America and Eastern Europe. In North America and Western Europe, labor moved up about 0.5% but were down in US dollar terms as a result of a weaker euro.

Civil and construction costs (a combination of heavy construction equipment, scaffolding, concrete and rebar, asphalt, and paint) were down 0.4% from this year’s first to third quarters. The ready-mix concrete market, which peaked in 2008 and has been on a long slide since, was down 1% over the 6-month period.

Consensus is that the industry is near the bottom and likely will hold until mid- to late-2013. Global construction equipment rates, which vary from weak in the developed world to stronger in the developing world, were up 2% overall this period. Asphalt and paint, both commodities that closely track oil prices, were down 0.8%.

“The refining situation in the Atlantic Basin—from the US Northeast through Western Europe—continues to struggle with low demand for transportation fuels (gasoline, jet fuel, and diesel fuel) and lower overall refinery conversion capabilities,” said Glenn Giacobbe, director of IHS’s Downstream Capital Costs Forum, “while high-conversion refineries on the US Gulf Coast are struggling with lower margins as a result of narrowing light-heavy spreads.”

A different picture emerges in Asia and the Middle East, said IHS, where refining activity for grassroots plants and especially cracking and conversion capacity, is robust.

Overall, IHS’s Capital Costs Forum said the index is holding while the global economy continues to emerge from the recession. Costs will begin a gradual rise mid- to late-2013 driven by a dwindling pool of skilled labor and the gradual tightening of the global steel markets.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

SIBUR plans MTBE expansion at Togliattikauchuk

07/01/2015 Russian conglomerate OAO SIBUR Holding, Moscow, has started preparatory work for a project designed to expand production capacity for methyl tertia...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected