HOUSTON (November 7, 2007) -- The costs of building new oil refineries and petrochemical plants are rapidly rising and reached a new high in the third quarter period ending in October, according to the first release of the new IHS/Cambridge Energy Research Associates (CERA) Downstream Capital Costs Index (DCCI).  These costs are beginning to act as drags, leading to delays and postponements in the building of new refineries and petrochemical plants required to keep up with growing world demand.

The new DCCI complements the IHS/CERA Upstream Capital Costs Index (UCCI), which measures the cost of construction of new oil and gas production projects such as platforms and pipelines.   Both indices demonstrate the dramatic impact rapidly rising costs are having on the energy industry.

The DCCI registered a high of 166 points in October, indicating an eight percent increase in the last six months in the costs associated with constructing new refinery or petrochemical plants. The 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 CERA data bases and analytic tools.

All values are indexed to the year 2000. Thus, a piece of equipment that cost $100 in 2000 would cost $166 today (see chart).

Downstream facilities are required to turn raw oil and gas into useful end products such as gasoline, heating oil, plastics and fertilizer. As the cost of construction rises, firms may become reluctant to invest in new plants, or delay and postpone these projects thus, in turn, constraining the growth of capacity.

The DCCI has been on an upward trend since 2003 with annual increases in the last three years of seven, 17 and 14 percent, respectively.

“The latest increases have been driven by continued high activity levels globally, continued tightness in the equipment and engineering markets, as well as historically high levels for raw materials” said Jackie Forrest, lead researcher for the Capital Costs Analysis Forum for Downstream, an on-going research project of CERA.

“On a global basis, the refining and petrochemical sector is currently facing heavy strains with new builds in the Middle East and Asia, expansions in the United States and heavy oil projects in Alberta all occurring simultaneously,” Forrest continued.

“We expect global refining capacity to expand 1.7 percent per year for the next five years, adjusted for expected delays and cancellations,” she added.   “This is 20-30 percent more expansion activity per year than we have recorded in the recent past. This may not sound like much, but 1.7 percent growth in refining capacity equals about 1.5 million barrels per day and that is significant as these are complicated facilities to construct.

“As a result of all of this activity, lead times for engineered equipment has increased up to 50 percent in the last 6-12 months for some items, and as expected, prices have increased,” Forrest added.  “Further compounding the problem is the raw materials and shipping situation. Both of these sectors have experienced recent increases, ultimately passing through costs to projects.”

Looking forward, Forrest said: “Unless there is a sudden and dramatic change in the industry, activity and market pressures should keep the DCCI at these levels, if not higher, for the next 12-18 months. After that period, there may be a re-balancing of the industry with either fewer active projects or a greater amount of delivery capacity available, or both.”

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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 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 or Richard Ward at rward@cera.com

About CERA (www.cera.com)

Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers, and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. 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 one of the leading global providers of critical technical information,

decision-support tools and strategic services to customers in a number of industries including energy, defense, aerospace, construction, electronics, and automotive through two operating segments, Engineering and Energy. IHS serves customers ranging from governments and large multinational corporations to smaller companies and technical professionals in more than 100 countries. IHS employs more than 2,300 people around the world.

© 2007, IHS is a registered trademark of IHS Inc. CERA is a registered trademark of Cambridge Energy Research

Associates, Inc. All other company and product names may be trademarks of their respective owners. Copyright ©

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