My experience tracking the coker projects suggest the opposite, one the reasons that contractor & material cost are going down is that several projects are being either delayed or cancled. Ones like Motiva that are already well into EPC /Construction stage – are doing what they can to reduce expensive expansion cost by reducing the concentrated work & high manpower loading that was set when they basically had to make maximum use of limited resources to time that was dictated by the contractors availability. It is good move.
The lower materials & manpower are coming amid economic crisis when refinery margins have collapsed, demand is at lowest levels since 1983, and all Refineries are looking at earnings hits to 4Q2008 & likely 1Q2009 and reductions capital spending budgets. The better projects are still going ahead but any with financial challenges are being cancled or delayed. And there are several that are looking canceling/delaying as a chance to Re-negotiating the project cost that had escalated to 2-3X original estimates….payback is always a bitch.
There is also a big question on several unknown strategic elements due to potential Democratic Environmental legislation that make US Refining expansion a losing proposition – Carbon Tax, higher gasoline taxes, already mandated higher Ethanol blending (no reason to add +10% gasoline capacity if it is going to be taken up by Ethanol instead of gasoline), push for larger fleet share of alternate electric vehicles & the near term rapid reduction of SUV’s in fleet (reduced consumption)……. none of these make good ROI case for expansions.
And although I also believe demand will eventually come back – it isnt going to be in next year or so (& we have enough EPC projects that finish by 2010-2011 to handle demand). We have 2 MM workers just laid off in 2008 & 2-3X that many that have just given up looking for jobs – so until next new industrial cycle develops to put them to work, they are not likely to be driving 2 or even 1 vehicles at the levels they were.
Regards
