Fuel is the most underestimated cost in construction.
Although not hidden, diesel and gas are usually not given adequate attention, as almost 100% of the diesel fuel used in the Caribbean is from refined crude oil.
Each load of sand or marl, use of heavy equipment such as cranes, forklifts, backhoes and generators, largely requires the use of fossil fuel. Trailers, container offices, hand tools and other equipment require electricity, often provided by generators. Grid connected electricity used on sites is mainly provided from companies that use fossil fuels in the production of the electricity and those fuel charges and adjustments increase without warning.
A study by the Carnegie Mellon University (CMU) indicates that the use of fuel on construction sites has never been studied fully.
But what does this have to do with your current or upcoming project? Figures from the US Government indicate that in 2002 power/fuel costs account for 1.2% of building construction and 4% of heavy construction costs. (Sherrard, Roth, & Matthews, 2007). For builders that can mean a $400,000.00 project can have between $4,800 to 16,000.00 in fuel-related costs. That is a lot! Although we do not have figures for the Caribbean, those figures are sure to be higher.
According to (IMF, 2016), oil prices have declined since September 2015, reflecting expectations of sustained increases in production by Organization of the Petroleum Exporting Countries (OPEC) members amid continued global oil production in excess of oil consumption. Future markets are currently suggesting only modest increases in prices in 2017.
An IMF 2016 Report explains that lower oil prices strain the fiscal positions of fuel exporters and weigh on their growth prospects, while supporting household demand and lowering business energy costs in importers, especially in advanced economies, where price declines are fully passed on to end users.
Although prices of oil and gas have been going down across the globe, industry players here are still paying premium prices for gasoline and diesel at the pump. Unfortunately, the Caribbean doesn’t have any ‘advanced economies’ and, very rarely, are savings passed on to the public. This means that construction costs should be cheaper overall because the cost of fuel, by-products and manufactured products such as steel, cement and even finished lumber should all be lower due to the economies of scale.
This means that a house project that should cost $100,000.00 USD will cost unbelievably more due to the failure of the systems to pass on savings. Your $200,000.00 home may only really be worth half of that with all things considered. Sadly, there isn’t much that we can do about prevailing forces around us. We certainly have little impact on the politics of fuel importation and heavy taxation that supports our social services.
While it may seem as though there is no escaping the use of fossil fuel, but surely we can begin to look at ways to reduce fuel costs before we begin to enjoy the completed projects. One suggestion made by environmental scientists is to make use of larger generators instead of small ones for better outcomes. Thankfully, there is a new revolution of renewable energy in the region is sparking hope of lower cost alternatives. Some countries have started to establish solar farms to either power specific projects, buildings or sections of communities.
Sherrard, A., Roth, M., & Matthews, H. S. (2007, May). http://www.cmu.edu/gdi/docs/environmental-implications.pdf. Retrieved from cmu.edu: http://www.cmu.edu/gdi/docs/environmental-implications.pdf
1 World Economic Outlook. January 2017