Rising EPC Costs

EPC (engineering, procurement, construction) costs have surged rapidly in the GCC.

Costs on the Qatalum Project in Qatar were recently revised upwards to $5.6 billion from an original $4.8 billion estimate mainly because of rising EPC prices.

Other major projects that have experienced cost inflation include -

1. Pearl GTL Project (Royal Dutch Shell), Qatar
2. Ras Tanura Petrochemical Complex (Dow Chemical & Saudi Aramco), KSA
3. PETRORabigh Complex (Saudi Aramco & Sumitomo Chemical), KSA
4. Qatar Petroleum and ExxonMobil scrapped plans earlier this year to build a large GTL plant.

The EPC costs, which include factor inputs, contractor’s margins and systematic pricing of project risk by the contractor, make up as much as 70% of the total project cost. The following make up the factor inputs -

1. Materials - Costs for materials such as steel, copper and concrete have increased dramatically in the last three years.
2. Manpower - Shortage of skilled workers has pushed up the cost of hiring or contracting qualified personnel.
3. Services/equipment - Costs for energy-related services, such as contracts for offshore drilling rigs, have nearly doubled within the last year in some locations due to the sharp rise in industry activity.