IHS CERA Capital Cost Analysis Forum – Downstream

The IHS CERA Capital Costs Analysis Forum - Downstream is our new advisory service responding to the needs of downstream industry clients who seek to control costs in the an era of rising project expenditures. The Forum serves mainly to evaluate downstream project development costs through the application of a Downstream Capital Cost Index (DCCI), which is designed to capture the precipitating elements behind the modern cost environment. The DCCI tracks the purchase price for a representative set of project portfolios and calculates weighted values for various inputs that have recently caused downstream project costs to skyrocket. The indexes account for such factors as:

• Engineering, procurement and construction labor scarcity
• Record number of current projects
• Tight raw materials supply-limited availability of premium steel, cement, copper and diesel fuel
• Competition with upstream industry for resources

Armed with this knowledge, clients can achieve a clear picture of how specific inputs affect their portfolio's total costs. IHS CERA analysts can use the indexes to show how certain costs are interrelated and where savings can occur in specific areas to offset increased fees in others. Forum members are privy to comprehensive cost data and participate in semiannual workshops, during which they receive the IHS CERA latest research and play a vital role in guiding future adjustments to the DCCI.

Subscribers to this service receive:

• Quarterly reports
• Workshops
• access to the IHS CERA secure website
• Telephone and email access to research staff

Benefits:

IHS CERA’s Capital Costs Analysis Forum – Downstream membership gives clients access to unique, timely insights concerning project costs, their direction, and the strategic implications associated with changes in the global cost environment. By building on and monitoring a set of indicators that reflect the critical issues in upstream project development, this service helps forum members to develop strategic responses to issues such as

• How do construction costs vary around the world?
• What drives regional construction costs?
• What factors influence current and future construction costs?
• How are vendors and engineering contractors responding?
• Are there constraints on the local workforces?
• What is the real versus estimated rate of inflation for large projects?

At the core of IHS CERA Capital Costs Analysis Forum - Downstream is the Downstream Capital Cost Index (DCCI) for monitoring the current state of the global refinery cost environment, together with the methodology used to define and generate index values. The DCCI defines a series of marketplaces that drive these changes and tracks them individually. IHS CERA experts apply their expertise and industry knowledge to frame changes in DCCI values against larger drivers, such as changes in industry fundamentals or geopolitical shocks.

Likewise, the tools used to develop and analyze the DCCI also enable forecasting of the potential impact of long-term trends in project fundamentals. The DCCI leverages the analysis in the IHS Global Scenarios Initiative, to support three robust future scenarios. Currently, the Forum's scenarios include projections extending to 2030.

The Capital Costs Analysis Forum—Downstream membership is on an annual basis and delivers value through four main components.

Quarterly Reports

• Track the current state of industry costs using unique, market-specific indexes
• Analyze the drivers behind changes in industry costs
• Describe the near- and long-term implications of current and forecasted changes in costs
• Provide comparative analysis of cost trends across regions and development types
• Forecast long-term cost trends using a scenario-based process

Workshops

In the spring and fall, Forum members convene for a half-day workshop to discuss the most recent Forum research and to debate the factors influencing long-term cost trends. The results of these discussions then guide the next round of analysis and modeling.

Website Access

Participants have access to the Forum website, which not only serves as a reference tool but where you can find selected research analysis and findings, workshop proceedings and summaries, project schedules, and logistics information.

Telephone Access to Research Staff

Forum members have access to IHS CERA research staff for telephone consultation during normal business hours.

The IHS CERA Capital Costs Analysis Forum - Downstream relies on a Downstream Capital Cost Index (DCCI) to track the individual component costs contained in a set of representative project portfolios, similar to the way a consumer price index (CPI) adds individual item costs to arrive at a total basket purchase price. As component costs (e.g., steel, insurance, labor rates) rise and fall, so will a given portfolio's cost. The difference between the DCCI and a CPI, however, is that our methodology calculates a ratio and influence for each component, providing a real-world context for total portfolio costs.

The process for deriving our DCCI is as follows:

• A representative portfolio of projects is defined
• Each project is modeled to the equipment level of definition
• Each project is then priced using a multiyear database of industry costs
• Individual project values are then aggregated into indexes, with the components compared and analyzed

Using this methodology, IHS CERA can solve questions involving interrelated component costs, such as:

• How will a 10% rise in labor rates impact total portfolio costs?
• What decrease in steel costs would have to occur to compensate for such a rise in labor rates?

IHS CERA Research Experts

• Glenn Giacobbe
• Candida Scott
• Pritesh Patel
• Colin Ward
• Omid Zareei
• Tina Pompilio