Energy mega projects fail to meet deadlines and incur billions of dollars in additional cost, according to a study by Ernst and Young (EY), an international consultancy. EY's performance examination report of 365 oil and gas mega projects found that there had been an aggregate increase of $500bn from initial cost estimates of $1200bn. The report found that 73% of the projects tracked missed deadlines, while more than half exceed their original budget.
The Middle East is home to the highest proportion of over-budget projects, with 89% of all projects costing more than originally projected. It is followed in this measure by Asia Pacific and Africa.
The technical and operational complexity of such projects means that share prices, as well as future funding accessibility, are highly dependent on projects being completed on time and to budget.
“Companies can no longer rely on oil and gas price increases, which, in the past, have masked many of the consequences of mega project overruns,” EY global oil and gas advisory leader Axel Preiss said shortly after the report was released. Unconventional energy frontiers such as shale gas have affected the financial viability of mega projects, and “securing capital is only going to become more difficult unless companies are able to consistently deliver on deadline and within budget,” he said.
The report cites several factors as the cause of delays and increased costs, including inadequate project management and planning, and outside factors, such as regulatory idiosyncrasies and currency fluctuations.
“Clearly, the external environment and regulatory and policy-related changes are not as easily controlled as the internal project management-related issues,” Mr Preiss said, adding that the industry can do “significantly more to prepare for these issues so that their effects can be adequately managed within the project environment”.