Approximating the Disproportionate Growth in the Cost of Capital Projects

In our 2014 Annual Perspective, titled False Precision and the Illusion of Accuracy, we shared our view of how increasing levels of detail in project budgets and schedules have given owners a false sense of confidence in the accuracy of their work volume measures and the resultant schedules. This combination of false confidence and rationalized optimism has been reinforced by reference to early plants that had much lower costs and shorter schedules, especially in bellwether commodity chemicals. As previously noted, we have consistently witnessed greater than twofold increases in capital cost and increased durations in hydrocarbonrelated facilities since the millennium. The disproportionate growth is clearly evident when comparing capital cost per annual production in commodity chemicals, even where the current plants should show evidence of economies of scale due to their larger size. In this analysis, we have attempted to benchmark in some detail the cost growth of a mid-1990s U.S. Gulf Coast commodity chemicals plant against a current version. Our hope is that readers can use this data to better understand the elements of capital cost growth, and to make informed decisions as to how some of this growth might be mitigated. What has caused the dramatic rise in capital project costs over the last two decades?