Upstream projects cost increases are slowing, says index

    Capital costs for E&P projects rose 7% in the six months ending March 31, compared to a 13% increase in the previous six months, said IHS Energy and Cambridge Energy Research Associates (CERA). This suggests that cost inflation will peak in the next 12 months. The firms’ new Upstream Capital Costs Index, which tracks about two dozen major onshore and offshore projects worldwide, hit 179 points, compared to 167 points in the previous six months. These data suggest an annual cost inflation of 14% for 2007, said Richard Ward, CERA’s senior director for costs research. This compares to the 30% annual rate recorded for 2006. Lack of experienced staff in the industry is a major factor in the cost hikes. Largest increases were for engineered equipment, including compressors, turbines and generator sets, added Ward.