Rystad Energy - Energy Knowledge House
Rystad Energy - Energy Knowledge House

press release

Cost inflation will hit the US oil and gas supply chain in coming years, starting with a surge in EPCI

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Supply chain costs are set to increase for oil and gas projects in the US in coming years, with the engineering, procurement, construction and installation (EPCI) segment being the first to record a double-digit percentage hike in costs, a Rystad Energy report forecasts. EPCI costs, mostly driven by climbing wages and material costs, are set to gain about 10% in 2023 from current levels.

As a result, US capital expenditure on EPCI in 2023 is expected to end at $15.5 billion, some $1.4 billion higher than where it would be under the current cost status quo. Higher expected construction wages account for about $1 billion of that extra cost, with the remaining $400 million coming mostly from the rising cost of bulk materials in addition to engineering labor.

This year’s EPCI capex is estimated at $12.6 billion, which means the segment is poised for a significant spending increase in 2023, irrespective of the cost rise – and the figure will climb even further in 2024 to $18.0 billion.

Other supply segments will also see higher costs in 2023, albeit not at the rate of EPCI. Subsea supply costs are expected to rise by 8% from 2021, maintenance and operations by 7%, drilling contractors by 6% and seismic by 5%.

Overall, our projections indicate that US oil and gas capital expenditure will rebound from a Covid-19-induced low of $91.0 billion in 2020 and an expected $99.3 billion this year to over $112.7 billion in 2023 and 2024. Concurrently, EPCI expenditure is expected to experience robust growth, peaking at $18 billion in 2024, up 50% from last year’s $12 billion.

Although the current trend of high oil prices indicates a more favorable economic outlook, the growth of EPCI costs is a cause for concern in the near term. Costs are expected to rise even further after 2023, with drilling contractor and subsea cost increases becoming the prime headache for oil and gas operators.


Learn more in Rystad Energy’s Cost Solution.

“If EPCI players fail to adapt to the rising costs, those executing lump-sum contracts and using outdated assumptions for procurement and construction indices will see their margins squeezed. To mitigate the effects of rising costs, contractors will need to be creative with how they source engineering and procurement services,” says Robert Mathey, analyst and supply chain expert at Rystad Energy.

A breakdown of EPCI costs

Operators should expect engineering costs for US-based projects to rise between 3% and 5% next year and by 5% to 8% in 2023, relative to current levels. This projection is consistent with earlier Rystad Energy research pointing toward the growing labor challenges within the oil and gas industry, particularly in attracting and retaining skilled workers.

Projects later in the lifecycle will also feel the effects of increased costs as the impact of global supply chain issues ripple across the energy sector and inflate procurement expenses. The Port of Los Angeles in California is a fine example: shipments wait to be unloaded, containers remain stacked waiting for trucks to pick up deliveries and, consequently, distribution centers nationwide struggle to fulfill orders.

Price increases will heavily impact US projects requiring large quantities of cable and pipe from US markets. Rystad Energy’s estimates indicate cable prices have risen between 20% and 50% in the past year, while pipe costs have increased 15% to 70%, depending on pipe material. Estimates also show a price increase in higher-level segments of the North American service industry most heavily exposed to raw material increases, most notably in processing equipment procurement, which is set to rise around 7% by 2023 from current prices. However, if Brent crude oil rises to $100 per barrel, that hike could be closer to 15% by 2023.

The rise in costs also challenges projects in the construction phase. Construction wages across all industries will increase around 5% by 2023 from current levels. This trend is set to be more pronounced in the oil and gas industry, with increases expected to be closer to 15%. Construction services constitute nearly half of all EPCI costs and are primarily driven by labor expenses, meaning rising wages could result in more than $1 billion of additional capital expenditure for US oil and gas projects in 2023.

EPCI players have in recent years increasingly used high-value engineering centers to carry out more design work, especially as remote working became prevalent during the pandemic. On the procurement front, companies are also seeking out and validating new suppliers in lower-cost regions to keep projects economically viable.

EPCI companies must be keenly aware of attracting and retaining talent as the pandemic has led to a worker shortage in the oil and gas and construction industries. While cost is a significant factor in the success of a construction project, these companies will also need to consider how shortages in skilled labor and worker turnover will impact project schedules, quality and safety.

For more analysis, insights and reports, clients and non-clients can apply for access to Rystad Energy’s Free Solutions and get a taste of our data and analytics universe.



Robert Mathey
Supply Chain Analyst

Elliot Busby
Media Relations Manager
Phone: +1 708 513 4214


About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.