Introduction
October 19, 2006, Zeus Development will host a one-day
workshop reviewing energy industry construction cost
trends and issues.
Take LNG, for example. LNG construction costs ebbed
in 2003 as continued reductions from advancements in
train sizes were overwhelmed by a falling U.S. dollar
and rising raw material, engineering, and equipment
costs brought on by strong demand for capital goods
in China and India. By 2006, LNG construction costs,
measured in dollars per ton-year of capacity, had climbed
from $200 to more than $500. Construction lead times
were lengthening as essential equipment, such as turbines
and heat exchangers, grew scarce and manufacturing capacities
filled.
Since the 2002 recession, raw material costs, producer
prices, interest rates and currency fluctuations have
converged to tighten construction capacity and send
costs soaring. Also, there is anecdotal evidence that
new development projects are being delayed until costs
come back down. Leadtimes for key equipment have also
extended the critical path for commissioning many projects.
In recent months, however, some of these costs have
plateaued. It has been more than a year, for example,
since steel prices have set a new record. Some manufacturers
of equipment have opened new manufacturing lines, so
their leadtimes have been improving. On the other hand,
nickel, copper and aluminum prices continue to soar.
Labor rates remain high, and engineering backlogs are
commonly measured in years rather than months.
These trends and issues and others will be discusses
at the October 19 workshop in Houston. The workshop
will identify the major cost elements in construction,
review the cost trend for each element, discuss the
price drivers, and explore future prospects and possible
strategies for securing more competitive prices.
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