Correlating the chemical engineering plant cost index with macro-economic indicators

Abstract

The chemical engineering plant cost index (CEPCI) is widely used for updating the capital costs of process engineering projects. Typically, forecasting it requires twenty or so parameters. As an alternative, we suggest a correlation for predicting the index as a function of readily available and forecast macro-economic indicators:CEPCI(n)=0.135×CEPCI(k0)×expA×∑k=konik+B×Poil+C, with k0 the first year of the period under consideration, ik the interest rate on US bank prime loans in year k, and Poil the US domestic oil price in year n. Best fit was obtained when choosing distinct sets of values of the constants A, B and C for each of the three periods 1958 to 1980; 1981 to 1999; and 2000 to 2011. These changes could have resulted from the impact of the oil shocks in the 1970s and very high interest rates in the 1980s, which perhaps heralded changes to the index formula in 1982 and 2002. The error was within 3% in any year from 1958 to 2011, and within 1% from 2004 to 2011 after readjusting the weighting of the price of oil. The correlation was applied to forecast the CEPCI under different scenarios modelled by the Energy Information Administration or predicted from oil futures contracts.