22 March 2007 02:48 [Source: ICIS news]
HOUSTON(ICIS news)--Engineering and construction cost increases will extend for another two to three years before gradually dropping back to trend-line levels, said an industry consultant on Wedensday.
The capital cost inflation has been especially steep in the Middle East, said Pat Rooney of CMAI at the consultancy’s annual petrochemicals conference in Houston.
Crackers completed in the late 1990s and in the early part of this decade in this region carried an annual capital cost of $473/tonne, he said, but this increased to around $700/tonne in the last couple of years.
The cost increases extend across the product chain. The annual engineering, procurement and construction (EPC) cost for high density polyethylene (HDPE) was $600-650/tonne during 2000-2003, which increased to $1,000-1,100/tonne in 2006, he said.
The main reasons are the construction boom in the Middle East and higher material and manpower costs.
Other regions around the world have also seen cost increases, but these have not been as steep.
Costs have escalated by 30-40% in the US Gulf coast on constant dollar basis and by only 25-30% to China. In comparison, the Middle East has seen a cost escalation of 70-80%, he said.
The higher capital costs will impact long-term margins for many petrochemicals, he added.
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