The supply chain costs of oil and gas projects in America are expected to increase in the coming years; That brings total capital expenditures close to $100 billion, according to a recent report.
The engineering, procurement, construction and installation (EPCI) sector is likely to drive the rising costs of oil and gas projects, with an increase of about 10% by 2023 over current levels, mostly due to rising wages and material costs, according to energy research firm Rystad Energy.
Rystad Energy expects capital spending on oil and gas in the United States to rise to $99.3 billion this year, after falling to $91 billion in 2020 due to the effects of Corona.
Capital expenditures on the sector are likely to rise to more than $112.7 billion in 2023 and 2024, according to the report.
Although the current trend of higher oil prices indicates a more favorable economic outlook; The growth in costs of the engineering, procurement, construction and installation sector, is a major concern – in the short term – for US oil and gas companies.
Oil prices have risen more than 50% this year, with Brent and West Texas Intermediate both trading above $80 in recent weeks before falling below that level this week.
Supported by this rise, US oil companies achieved record profits in the third quarter of this year.
American oil companies achieve record profits, exceeding Wall Street expectations
Sourcing Sector Costs
US oil companies’ capital expenditures in the engineering, procurement, construction and installation sector are set to rise in 2023 to $15.5 billion, an increase of nearly $1.4 billion from current levels, before reaching $18 billion in 2024.
According to Rystad Energy, the capital expenditures for this sector in the current year are estimated at 12.6 billion dollars.
The projected higher construction wages account for $1 billion of that additional cost, with an increase of nearly 15% over current levels, while the remainder comes mostly from the higher cost of materials as well as manpower in the engineering sector, according to the report.
This comes as engineering costs for projects in America are expected to rise between 5% and 8% in 2023, as well as increased procurement expenditures, as a result of current supply chain problems across the energy sector, according to the report.
Rystad Energy estimates that cable prices have risen between 20% and 50% in the past year, while pipe costs have increased by between 15% and 70%, depending on the pipe material.
Other supply sectors are also likely to witness an increase in costs in 2023, with an 8% increase for the subsea supply sector, related to production from offshore fields, while maintenance and operation work will increase by 7%, drilling contractors by 6%, and seismic studies by 5%.
SOURCE : ATTAQQA