Oil Industry Costs Weakening After Hitting Record-CERA
Friday November 21st, 2008 / 12h39
LONDON -(Dow Jones)- Oil and natural gas drilling costs around the world are starting to weaken amid the global economic downturn after hitting a record level in the past six months, according to Cambridge Energy Research Associates. In a report, obtained by Dow Jones Newswires, the U.S. energy consultants said the fallout of the global economic crisis, with all energy and metal commodity prices tumbling in recent months, had already started pressuring drilling and construction costs. "The effects of the recession and the credit freeze will likely change the picture considerably in the months ahead," CERA chairman Daniel Yergin said in a summary of the report. Costs had already started to moderate in early October, the report indicated. Many companies in recent weeks have put a host of expensive drilling and refining projects on hold in order to capitalize on falling costs. The announced delays have unnerved some industry analysts about the health of future oil and crude-product supplies once global economic activity rebounds. CERA said continued high activity levels and tightness in the oil exploration services and equipment markets pushed its upstream cost index to 230 points in the past six months from a previous high of 210. According to its calculations, which are indexed to costs in the year 2000, a piece of upstream equipment that cost $100 eight years ago would fetch $230 today. On a percentage basis, the upstream index rose 9.2%. The consultants also said the costs of designing and building refining and petrochemical projects continued rising in the past six months but also expected these to fall into 2009. "Although the current credit crisis did little to slow construction costs this period, we expect growing credit issues and slower global growth to lead to lower costs for constructing downstream projects in the next period," said Jackie Forrest, CERA's lead researcher for assessing refining and petrochemical costs. CERA's downstream index calculations, which rose 11 points to 187, or 6% from the prior period, mean that a refining or petrochemical project that cost $100 in 2000 would cost $187 today. -By Spencer Swartz, Dow Jones Newswires; +44 (0)207 842 9357; spencer.swartz@dowjones.com
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