CAMBRIDGE, MA (June 9, 2009) – The effects of the global economic slowdown and falling commodity prices have halted the rise of costs for designing and constructing downstream refining and petrochemical projects after years of steady escalation, according to the IHS CERA Downstream Capital Costs Index (DCCI). 

The IHS CERA DCCI declined from 187 to 170—a decrease of 9 percent. The values are indexed to the year 2000, meaning that a project that cost $100 in 2000 would cost $170 today. The drop reverses a six percent increase observed over the previous six months and returns costs back to levels last observed in late 2007.  

“The downward pressures that began to materialize at the end of third quarter 2008 have now taken hold on the cost of construction materials,” said Daniel Yergin, Chairman of IHS Cambridge Energy Research Associates (IHS CERA). “At the same time, slowing demand for both energy-related and general construction projects has slackened demand causing a further loosening of the construction market costs.” 

The IHS CERA DCCI is a proprietary measure of project cost inflation similar in concept to the Consumer Price Index (CPI). It provides a benchmark for comparing costs around the world and draws upon proprietary IHS and IHS CERA databases and analytical tools. 

The decrease in the IHS CERA DCCI was driven by a sharp decline in steel costs (down over 25 percent in the past six months) and low oil prices—West Texas Intermediate averaged $48 dollars per barrel for March 2009 compared to an average of $120 during the second and third quarters of 2008. While projects already under construction are proceeding, the sharp decrease in demand and price for petrochemical and refinery products are challenging the economics of future downstream projects. 

“We have seen a notable drop in new refinery project starts as companies react to low margins at a time of high costs and declining product demand,” said Jackie Forrest, lead researcher for IHS CERA’s Capital Costs Analysis Forum for Downstream. “Due to the long time horizon associated with downstream projects, the slowdown in new project starts will lead to slower demand in the next few years for downstream construction markets.” 

“Although equipment prices are starting to show signs of weakening, falling commodity prices have not yet flowed through the entire supply chain to allow for more significant price reductions,” Forrest added. 

All regions tracked by the DCCI showed declines over the past six months with Russia (17 percent) South America (16 percent) among the sharpest declines. 

“In the past 6 months, the strengthening US dollar contributed to notable differences in regional costs”, Forrest said. “Because downstream projects have a substantial percent of the total project costs procured locally, the strengthening U.S. dollar worked to decrease project costs in many regions.” 

In one case, the value of the Russian Ruble (as measured in U.S. dollars) reduced the cost for labor in Russia by more than 25 percent, Forrest noted. 

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About the IHS CERA Downstream Capital Costs Index (DCCI)
The IHS CERA DCCI tracks the costs of equipment, facilities, materials, and personnel (both skilled and unskilled) used in the construction of a geographically diversified portfolio of more than thirty refining and petrochemical construction projects. It is similar to the consumer price index (CPI) in that it provides a clear, transparent benchmark tool for tracking and forecasting a complex and dynamic environment. The DCCI can be tracked on the IHS Index Web Site: www.ihsindexes.com. The DCCI is a work product of IHS CERA’s Capital Costs Analysis Forum for Downstream (CCAF-D). For information on the Capital Costs Analysis Forum for Downstream, contact Jackie Forrest at jforrest@cera.com 

About IHS CERA ( www.cera.com)
IHS CERA is a leading business information provider to energy companies, consumers, financial institutions, technology providers and governments. IHS CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. IHS CERA is based in Cambridge, MA, and has offices in Bangkok, Beijing, Calgary, Dubai, Johannesburg, Mexico City, Moscow, Mumbai, Oslo, Paris, Rio de Janeiro, San Francisco, Tokyo and Washington, DC. 

About IHS ( www.ihs.com) 

IHS (NYSE: IHS) is a leading global source of critical information and insight, dedicated to providing the most complete and trusted information and expertise. IHS product and service solutions span four areas of information that encompass the most important concerns facing global business today: Energy, Product Lifecycle, Security, and Environment all supported by Macroeconomics. By focusing on customers first, IHS enables innovative and successful decision-making for customers ranging from governments and multinational companies to smaller companies and technical professionals in more than 180 countries. IHS is celebrating its 50th anniversary in 2009 and employs approximately 3,800 people in 20 countries. 

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