The number of new energy projects around the world announced in the second quarter of 2011 was relatively static, according to the EIC Monitor, a trade association for UK companies supplying the energy industry worldwide.
The data was released late Monday. Only the power sector demonstrated growth in new project announcements, which were up 13% in potential investment value. The renewable energy and upstream sectors saw the largest quarterly drop in potential investment values, but this reflects several large project announcements in the previous quarter.
According to the data, there were 553 new projects across the global energy supply chain with an estimated total value of $280 billion in Q2. This compares with 548 new projects in Q1, totaling $388 billion, and 415 new projects in Q2 2010 worth $321 billion.
The Monitor includes project proposals that require multiple consents and approvals and may not have finance, providing no guarantee that investment values will be realized -- values are thus for potential investment. For example, the first quarter 2011 figures are skewed by the inclusion of the $80 billion Grand Inga hydropower project in the Democratic Republic of Congo.
The rise in power sector project announcements follows data from consultancy IHS CERA that power plant construction costs have started to rise again after a period of reductions and stagnation since early 2008. IHS' Power Capital Costs Index for North America rose by 2% to 219 for the six-month period from third-quarter 2010 to first-quarter 2011. The baseline year is 2000, which represents an index score of 100. The European index fell 2%, but IHS said this reflected exchange rate fluctuations as the euro strengthened against the dollar. The European index score is now 190.
The latest increase in costs signals the first significant upward momentum since the long decline in costs began, said IHS senior director of Cost and Technology, Candida Scott. "Exchange rates aside, the underlying global trends for both North America and Europe are actually very similar and point to a period of rising costs."
The increase in costs was driven primarily by rising metal and oil commodity prices. Labor costs in both Europe and North America are also increasing. Notably, major equipment costs fell by 1% over the sixth month period and continue to lag the broader economic recovery.
In the upstream sector, there were 65 new projects announced totaling $19.4 billion, according to the EIC. This compares with 79 new projects totaling $56.6 billion in Q1, and 67 new projects totaling $25.2 billion in Q2 2010. For Q3 2010 to Q1 2011, IHS' indices show a sharp rise in both capital and operating costs for upstream projects. The Upstream Capital Costs Index rose by 5% to 218, while the Upstream Operating Costs Index increased 2% to 178. Pritesh Patel, director of the IHS CERA Upstream Capital Costs Analysis Forum, said "We can see construction costs reaching near peak levels (third-quarter 2008) by the end of the year." The UOCI is just two index points below its third-quarter 2008 peak level.
For the downstream sector, the costs for designing and constructing refining and petrochemical projects rose 6% from Q3 2010 through Q1 2011, surpassing their pre-recession peak and setting a new high, according to the IHS CERA Downstream Capital Costs Index. The 6% increase was the sharpest rise since the previous peak during third-quarter 2008.
According to ECI Monitor, there were 69 new projects announced in the downstream sector totaling $48.6 billion in Q2, compared with 75 new projects totaling $56.1 billion in Q1, and 58 new projects amounting to potential investment value of $61.0 billion in Q2 last year.
