Oil industry costs continue steep rise: CERA

By Michael Erman

NEW YORK (Reuters) - Costs to tap into new oil and gas projects escalated about 6 percent globally over the past 6 months and the climb can be expected to steepen on soaring prices for steel and other raw materials, according to a study released on Wednesday.

Cambridge Energy Research Associates (CERA), a unit of information and consultancy IHS Inc (IHS.N), said that costs to build new refineries and petrochemical plants also rose 6 percent.

"So long as oil prices remain high and demand for the end products remain high, I think we're going to see continued high level of costs," Candida Scott, senior director of cost and technology at CERA, said in an interview.

"We'd really have to see a slackening of demand and oil prices coming down to see any reduction in costs."

According to the study, costs to produce oil and gas have more than doubled since 2000, with most of that surge coming in the last three years.

Demand for oil has soared in that period, leading to the shortages in labor, equipment and raw materials that have driven much of the rise in costs. The weak dollar also contributed to the rise, CERA said.

Oil prices have also skyrocketed over that same period, and hit a record of nearly $127 a barrel on Tuesday.

Daniel Yergin, chairman of CERA, said in a statement that the rising production costs acted as a "new fundamental" supporting the rise of oil prices.