According to a new index for measuring upstream costs developed by Cambridge Energy Research Associates, the cost of exploring, drilling and producing oil and natural gas has jumped more than 53% over the past two years.
"This continuing cost surge is central to every energy company's strategic planning and to every energy user's expectations for supply security in the coming years," - Daniel Yergin, CERA chairman
"This continuing cost surge is central to every energy company's strategic planning and to every energy user's expectations for supply security in the coming years," CERA chairman Daniel Yergin said in a statement.
"Rising capital costs rank right alongside more widely recognized issues such as world market trends, geopolitics, globalization and new technologies at the top of the agenda for the energy industry."
According to CERA, costs have risen so much that companies need an oil price above $55/barrel to maintain confidence that projects will prove worthy from an economic standpoint.
Richard Ward, a senior director at CERA, said, "While oil prices stay above $55/barrel, CERA expects that confidence to remain. Should prices slip below $50/barrel, the industry should expect some expansion projects to be canceled or delayed."
Ward said there had been "a slight relaxation of tight support services or commodity markets, particularly in the US.
And most noticeably for natural gas projects, where development costs have remained high."
Despite a slowing in the rate of increase in the six months to October 31, CERA expects project costs to continue their upswing and reach record levels in 2007.
"With high oil prices driving new development projects, capacity constraints continue to support increases in the cost of equipment and services," Ward said.
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