Refinery construction costs fall 9 pct-IHS CERA

HOUSTON, June 9 (Reuters) - U.S. refiners struggling with slack gasoline demand, sinking profit margins and soaring inventories could see one bright spot on the horizon in the form of falling construction costs, according to a new report released on Tuesday.

According to IHS Cambridge Energy Research Associates, an energy consultancy, the cost of building new refining and petrochemical plants fell 9 percent between the third quarter of 2008 and the second quarter of 2009, after years of steady increases.

"The cost decline we've seen so far is due to the commodity cost coming down," said Jackie Forrest, director of IHS CERA's downstream capital cost forum. "We do anticipate further decreases."

The decline comes too late for several refinery projects such as the nearly $3 billion in planned hydrocrackers U.S. refiner Valero Energy Corp (VLO.N) shelved last week saying it would be cheaper to buy refineries, which are selling at deep discounts against replacement costs.

Some companies are taking advantage of lower costs already, adjusting budgets downward and rebidding contracts.

Saudi Aramco officials said last week that two joint-venture 400,000 barrel-per-day refinery projects would be re-bid and were expected to cost $10 billion, down $2 billon. Both projects began with $6 billion pricetags.

About two-thirds of the decline was due to the slide in the price of commodities such as steel, which fell 25 percent in the past six months, and oil, Forrest said.

"The downward pressures that began to materialize at the end of the third quarter 2008 have now taken hold on construction costs," said IHS CERA Chairman Daniel Yergin in a statement.

"At the same time, slowing demand for both energy-related and general construction projects has slackened demand causing a further loosening of construction market costs," Yergin said.

IHS CERA's report is based on the research firm's own index of global refinery and petrochemical plant construction costs.

In the last six months, IHS CERA's Downstream Capital Costs Index fell from 187 to 170. The index has a baseline of 100 in the year 2000, meaning a project that cost $100 in 2000 would cost $170 in 2009.

The current level is the first decline seen since the index began and places downstream construction costs back to 2007 levels.

(Editing by Lisa Shumaker)