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Page added on January 30, 2009

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It’s cheaper to drill – but no rush for rigs

Falling commodity prices from oil to metals are allowing firms to realize savings rather than persue new development.


LONDON (Reuters) — The bubble has burst on the price of raw materials such as steel, making it cheaper to drill for oil, but there will be no rush for rigs now that recession is eroding demand for fuel worldwide.


The record rally in commodities from oil to metals had doubled the cost of building a refinery in Saudi Arabia, tripled the budget for a super-clean fuel plant in Qatar and drove up the price of pumping oil and gas.


Soaring costs made companies think twice about investments despite oil’s run to nearly $150 a barrel in July.


Now, partly compensating multinationals and producer countries hurt by the collapse in prices to $40, cost inflation has eased on the projects they need to safeguard future output.


“Cheaper material costs will at least partly offset the drop in oil prices, supporting project economics despite the downturn,” said Antoine Halff of Newedge brokerage.


Reuters



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