Business | Property
Rising building costs pose threat to oil sector growth
A surge in building costs is threatening expansion projects by oil producers and could cause long-term problems for the industry, Arab producers said.
- By Stanley Carvalho, Staff Reporter
- Published: 00:00 October 16, 2006
Abu Dhabi: A surge in building costs is threatening expansion projects by oil producers and could cause long-term problems for the industry, Arab producers said.
Aggravating the problem is growing uncertainty of global oil demand, which makes producers more reluctant to push ahead with expansion programmes, said the 10-nation Organisation of Arab Petroleum Exporting Countries (Oapec). "The rising cost of projects in various phases of the international oil industry is a source of concern for the producing countries and the companies operating in the industry," the Kuwait-based group said in its latest monthly bulletin.
"It is one of the major factors behind the reconsideration of some planned projects in certain regions of the world, leading either to temporary postponement or total shelving in some cases. Such decisions may hinder Opec countries' efforts to boost production and refining capacity so as to calm prices and stabilise markets," it added.
It said high costs, particularly relating to engineering, procurement, and construction (EPC), have become a critical issue for the world oil industry-and the gas, petrochemical, and power generation industries in the past few years.
Oapec said there are now about 100 exploration and production projects in the 11 Opec countries alone, with a total price tag of more than $100 billion.
"The increased number of projects has led to shortages of some production factors, expertise, and essential equipment, and high prices for some basic materials, such as iron and cement, for which other construction projects throughout the Middle East are competing."
"Moreover, development projects in Asian nations with high growth rates, such as China and India, are adding to the pressure on such resources...these factors have pushed up the costs of new projects and inflated their final costs, sometimes to more than double their initial estimate, in most regions of the world, including Oapec members."
"The stability of costs around a project's estimate is one of the challenges facing Opec countries, and Oapec members in particular, especially in light of the uncertainty surrounding world demand for oil.
What exacerbates the state of uncertainty is the insistence of major consuming nations that Opec countries boost their investments in additional output capacity, while they are taking measures to cut their dependence on oil, particularly oil from the Arab region."
"Some petroleum exporting countries have therefore started questioning the efficacy of expanding their production capacity, in light of demand uncertainty caused by industrial countries announcing plans to shift away from oil to other sources and when costs are spiralling ever higher," it added.
Share this article
Gulf News classifieds
Popular in Business
Business Editor's choice
-
Sweet life in the Middle East
A sweet look at the confectionary industry in the UAE and Middle East
-
Passion for pets can be expensive
Responsibility and time spent add to costs for furry friends
-
Facebook farm game under cloud
Mobile phone contracts can be used to buy virtual money
-
UAE
Abu Dhabi's infrastructure spending
New road networks to reignite construction sector.
