OPEC ministers say high construction costs might kill oil projects

According to a Dow Jones Newswires report, the Organization of Petroleum Exporting Countries ministers said May 7 that rising commodity and raw material prices are increasing the cost of oil and gas projects by up to three times.

Although high crude prices may be helping to drive investment in oil production, the rising cost of construction could curb new oil and gas production development, OPEC ministers warned.

Addressing delegates at Petrostrategies annual oil summit in Paris, Qatari Oil Minister Abdullah al Attiyah said: “Our costs have tripled from two years ago, due to high (commodity) prices. And it’s not just that, it is also contractors who have tripled their prices,” Dow Jones, Paris, reported.

Oil prices have recently stayed in the $60-plus range due to supply concerns and geopolitical unrest in several OPEC member countries. The news agency said the cost of raw materials and commodities has also risen rapidly in recent months using copper as an example.

The price of copper, a key material in oil field development, has increased by 30 percent over this time last year. On May 7 “three-month copper on the London Metal Exchange hit an all-time record high price of $5,830 a metric ton,” Dow Jones reported.

“Al Attiyah, told delegates that he has spoken to senior executives at international contracting firms to warn them of the damage which may be caused by rising development costs,” the news agency said.

Al Attiyah was quoted as saying, “I have told the CEO’s that projects have to be viable on both sides otherwise it will kill the projects.”

His comments were echoed by United Arab Emirates Oil Minister Mohammed Al Hamli who said that as a result of sky-rocketing commodity costs it is difficult to forecast how much it will cost the U.A.E. to raise its oil production from the current 2.5 million barrels per day to 3.5 million b/d by 2010.

According to the Dow Jones article, an executive from a Gulf-based oil producing country said that a commodities shortage also means that heavy equipment such as cranes are in short supply, enabling construction companies to charge “extortionate costs.”

Dow Jones reported that OPEC’s Secretary General Mohammed Barkindo had joked with delegates at the Petrostrategies summit about consumers criticizing OPEC in the past for acting as a cartel, but that currently oilfield contractors are acting that way by pushing costs as high as possible.

—Petroleum News