Upstream costs continue unabated rise for the fifth quarter straight

S&P Global Commodity Insights Upstream Capital and Operating Cost indices for the First-quarter 2022 see increases across the board, with costs expected to rise to over 8% by the end of 2022.

The Upstream Capital Costs Index (UCCI) increased by 2.8% and Upstream Operating Costs Index (UOCI) grew by 3% and quarter on quarter (q/q).

Increases were driven by rising raw material prices and continuing supply/demand disruption, which fed through into steel products, equipment, and chemicals. We expect that the cost escalation will continue through the year, with the UOCI ending 2022 up 8% and UCCI up 8.6%.

The most significant market movements for the Q1 2022 include:

• The steel market increased by 8.9% over the first quarter 2022. Input costs were up, and supply limitations contributed to rising steel prices.
• The subsea market increased by 3.1% over first quarter 2022. High inflation and rising raw material prices accounted for a significant portion of the subsea market escalation.
• The offshore installation vessel market increased by 2.7% over first quarter 2022. The offshore vessel market rebounded owing to higher oil prices and a sustained operator preference for high-end vessels
• The operations index gained 4% during first quarter 2022, driven by a 7% escalation in the diesel index, as Brent prices rose 30% in the quarter. As oilfield activity recovered, encouraged by high crude oil prices, the labor rates edged up 1% in US dollar terms during the quarter but rose 4% in local currency because of the Commonwealth of Independent States (CIS) currencies' strong depreciation. The operations index is expected to rise 11% in 2022.
• The maintenance index grew by 4% in first quarter 2022 in US dollar terms and is forecast to end the year up by 7%. Overall maintenance demand is rebounding, supported by higher oil prices and the easing of COVID-19-related restrictions in some regions. The facilities inspection and maintenance (FIM) index escalation continued into the first quarter of 2022 with 4% growth. The index will face pressure from rising labor costs coupled with higher steel and bulk materials prices.
• The logistics index gained 1% q/q but is expected to end the year up by 8%. Supply chain disruptions, particularly in trucking, will push the index higher through the year.
• The wells index registered 4% higher during first quarter 2022 in US dollar terms, while increasing by 11% compared with the same quarter in 2021. The oilfield service sector continues to face major input cost inflation, driven by steel, chemical additives, fuel, trucking, logistics, and labor costs, all of which will push the wells index higher this year.

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This blog is an extract from two reports. The full reports First quarter 2022 UCCI and UOCI market review are available for S&P Global Commodity Insights Connect platform subscribers only. For more information contact James Blanchard.

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Posted 24 June 2022 by Zayd Wahab, Associate Director, Upstream Costs and Technology, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.