Refinery and Petrochemical Construction Sees Hike in Cost

In the latest edition of its Downstream Capital Costs Index, IHS CERA reports that the costs for designing and building refineries and petrochemical projects rose 6% from the third quarter of twenty-ten to the first quarter of this year. It’s the sharpest six-month climb since the recession.

“And that’s primarily because of the boom in the commodity prices, steel and copper, which we saw in the last six months of 2010 and also in the first quarter of 2011.”

Houston-based IHS CERA analyst Farooq Sheikh. Other factors contributing to the rise in construction costs include the weakness of the U.S. dollar and a shrinking pool of skilled labor.

High prices at the pump aside, Sheikh says refiners have little room to pass along their cost increases to consumers.

“Refiners, particularly in the Gulf Coast area, are still under tremendous pressure when it comes to margins. Gasoline demand in the U.S. is still pretty static.”

The study predicts the industry will face upward pressure on construction costs for at least another six months.

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