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Energy consultants wary of offshore construction costs

Hong Kong: Asian yards which have focused on highly profitable offshore construction business may be slowing the pace of oil and gas exploration, according to US-based energy consultants. The rapidly rising cost of building new equipment for offshore exploration has meant that production costs have soared by 53% over the past two years, says chairman of Massachusetts-based Cambridge Energy Research Associates, quoted by Bloomberg.

Speaking on a conference call to analysts yesterday, Cambridge Energy chairman Daniel Yergin predicted that costs will continue to rise for the next 12-18 months and could delay some new projects. "It took the industry by surprise," Yergin said. "Companies can't do as much as they budgeted."

Dramatically higher oil prices have generated a rich new line of business for Asian shipyards engaged in offshore conversion and new construction work. However, with a record orderbook for new merchant tonnage, shipyards are full and newbuilding prices have risen sharply. There is now almost no spare construction capacity in Asian shipyards for at least three years.

Cambridge Energy and IHS Inc, a Colorado-based energy data analyst, monitor the relative costs of oil and gas projects both offshore and on land by way of an index established in 2000. From an initial value of 100, the index has now risen to 167, mostly in the last two years. Oil companies are expected to use the index as one of their tools in gauging the potential profitability of new investments.  [13/02/07]

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