Lecture 11 - Process Economics I

Process economics I Process economics I Process economics I Process economics I
H82PLD - Plant Design Econ I - 2

Lecture outline Lecture outline Lecture outline Lecture outline
Capital cost for new design
Operating cost
Depreciation
Pre-tax and after-tax earning
Profitability analysis
Introduction Introduction Introduction Introduction
Purpose of chemical processes: to make $$
3 basic roles of process economics in process
design:
Evaluation of design options
Process optimisation
Overall project profitability
Capital cost for new design (focus in this lecture):
Battery limits investment (next slide)
Utility investment
Off-site investment
Engineering fees
Working capital
Battery limits investment Battery limits investment Battery limits investment Battery limits investment
Battery limits: geographical boundary that defines process
manufacturing area (converting raw materials products)
Battery limits investment requires the purchase of
individual plant items & their installation to form the
working process.
Cost for equipment is often quoted as FOB (Free On Board):
Manufacturer pays for loading charges onto a shipping truck,
railcar, barge or ship, but not freight or unloading charges
Delivered cost = 5~10% added to the FOB cost
Cost of equipment is a function of:
Size
Material of construction
Design pressure
Design temperature
Battery limits Battery limits Battery limits Battery limits
( Seider et al., 2003)
Cost vs. capacity charts Cost vs. capacity charts Cost vs. capacity charts Cost vs. capacity charts
Seider et al. (2003)
Equipment purchase cost Equipment purchase cost Equipment purchase cost Equipment purchase cost
Cost data can be expressed as power law of capacity:
where
C
E
= equipment cost with capacity Q;
C
B
= known base cost for equipment with capacity Q
B
;
M= constant depending on equipment type
Published data available from public literature are often old,
can be brought up-to-date using cost indices:
where C
1
= equipment cost in year 1; C
2
= equipment cost in
year 2; I
1
= cost index in year 1; I
2
= cost index in year 2
M
Q
Q
C C
=
B
B E
=
2
1
2 1
I
I
C C
Commonly use cost index:
ChemEng (CE) Indices (I
base
= 100 @ 1958; Chemical
Engineering magazine)
Most useful, covering heat exchangers, tanks, pipe, valve &
fittings, process instruments, pump & compressors, structural
support, etc.
Different indexes are combined CE Index of Equipment
Marshall & Swift (MS) Indices (I
base
= 100 @ 1926;
Chemical Engineering magazine)
Nelson-Farrar (NF) Refinery Cost Indices (I
base
= 100
@ 1946; Oil & Gas Journal)
Capital cost correlations (CE Capital cost correlations (CE Capital cost correlations (CE Capital cost correlations (CE
index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011)
Capital cost correlations (CE Capital cost correlations (CE Capital cost correlations (CE Capital cost correlations (CE
index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011) index = 585.7 @ Annual 2011)
A comparison between indexes A comparison between indexes A comparison between indexes A comparison between indexes
US Consumer Price
Index (measurement
of inflation rate)
Engineering News-
Record Construction cost
index average for all
industrial construction
Example 1 : Heat exchanger Example 1 : Heat exchanger Example 1 : Heat exchanger Example 1 : Heat exchanger
A new heat exchanger is to be installed as part of a
large project.
Preliminary sizing of the exchanger has estimated
its heat transfer area to be 500 m
2
.
Material of construction: low grade stainless steel
(ignore)
Pressure rating: 5 bar (ignore)
CE Index of Equipment: 441.9
Estimate the purchase cost of the heat exchanger.
Example 1 Example 1 Example 1 Example 1 solution solution solution solution
Capital cost estimation using power law:
Up-to-date costing using CE Index:
=
1
1 E

I
I
C C
E
M
Q
Q
C C
=
B
B E
4
68 . 0
4
0 1 x 4 . 11 $
80
500
0 1 x 8 2 . 3 =
=
4 4
10 x 3 . 15 $
8 . 435
7 . 585
10 x 4 . 11 =
=
Material of construction
influences significantly
equipment capital cost
correction factor f
M
is used
Cost factors for shell-and-
tube heat exchanger are
more complex.
Typical equipment materials
Material f
M
Carbon steel 1.0
Aluminium 1.3
Stainless steel (low grades) 2.4
Stainless steel (high grades) 3.4
Hastelloy C 3.6
Monel 4.1
Nickel & inconel 4.4
Titanium 5.8
Pressure vessel & columns
Material f
M
Carbon steel 1.0
Stainless steel (low grades) 2.1
Stainless steel (high grades) 3.2
Monel 3.6
Inconel 3.9
Nickel 5.4
Titanium 7.7
Shell-and-tube heat exchanger
Material f
M
CS shell and tubes 1.0
CS shell, aluminium tubes 1.3
CS shell, monel tubes 2.1
CS shell, SS (low grade) tubes 1.7
SS (low grade) shell and tubes 2.9
Influence of operating
pressure: thicker vessel
walls to withstand increased
pressure pressure
correction factor f
P
Influence of operating
temperature: decrease in
allowable stress as
temperature increases
temp correction factor f
T
Correction factor for pressure
Design pressure (bar absolute) f
P
0.01 2.0
0.1 1.3
0.5 7 1.0
50 1.5
100 1.9
Correction factor for temp
Design temperature (C) f
T
0 100 1.0
300 1.6
500 2.1
In addition to purchase cost, investment is needed for
equipment installation, include:
Cost of installation
Piping & valves
Control systems
Foundations
Structures
Insulation fine proofing
Electrical
Painting engineering fees
Contingency
Total capital cost (installed equipment within battery
limits) = 2 ~ 4 times of equipment purchase cost.
Utility investment Utility investment Utility investment Utility investment
The cost of utilities is considered from their sources within
the site to the battery limits of the chemical process served
Capital investment in utility plant include equipment for:
Electricity generation
Electricity distribution
Steam generation
Steam distribution
Process water
Cooling water
Firewater
Effluent treatment
Refrigeration
Compressed air
Inert gas (nitrogen)
Off Off Off Off- -- -site investment site investment site investment site investment
Off-site investment includes:
Auxiliary buildings (offices, medical, personnel, locker rooms,
guardhouses, warehouses & maintenance shops)
Roads and paths
Railroads
Fire protection systems
Communication systems
Waste disposal systems
Storage facilities for end product, water and fuel not directly
connected with the process
Plant service vehicles, loading and weighing devices.
The cost of the utilities & off-sites ~ 20 to 40% of the total
installed cost of the battery limits plant. Generally, the
larger the plant, the larger cost for utilities and off-sites
Small project: ~20% of the total installed cost for utilities & off-sites.
Large project, the figure can be typically up to 40%.
Working capital Working capital Working capital Working capital
Working capital is what must be invested to get the plant
into productive operation.
This is money invested before there is a product to sell and
includes:
Raw materials for plant start-up (including wasted raw materials)
Raw materials, intermediate and product inventories
Cost of transportation of materials for start-up
Money to carry accounts receivable (i.e. credit extended to
customers) less accounts payable (i.e. credit extended by suppliers)
Money to meet payroll when starting up.
In contrast to fixed investment, this money is not lost but
can be recovered when the plant is closed down.
Stocks of raw materials, intermediate and product
inventories often have a key influence on the working
capital and are under the influence of the designer.
30%of annual sales, or
15%of total capital investment
Total capital cost Total capital cost Total capital cost Total capital cost
The total capital cost of the process, services and working
capital can be obtained by applying multiplying factors or
installation factors to the purchase cost of individual items
of equipment:
where:
C
F
= fixed capital cost for the complete system
C
E
= cost of Equipment i
f
i
= installation factor for Equipment i
If an average installation factor is used:
where f
I
= overall installation factor for the complete system
=
i
i E i F
C f C
,
=
i
i E I F
C f C
,
The overall installation factor is
broken down into component parts
according to the dominant phase
being processed.
Fluid processing: if the plant
handles only gases and liquids,
Solids processing: if the bulk of the
material handling is solid phase.
(e.g. coal or ore preparation plant)
Plants handle both phases:
Example: shale oil plant
preparation of shale oil extraction
of fluids from shale oil separation
& processing of fluids
Estimated by interpolation in
proportion of the ratio of major
processing steps
Item
Fluid
processing
Solid
processing
Direct cost
Equipment delivered cost 1 1
Equipment erection, f
ER
0.4 0.5
Piping (installed), f
PIP
0.7 0.2
Instrumentation & controls, f
INST
0.2 0.1
Electrical (installed), f
ELEC
0.1 0.1
Utilities, f
UTIL
0.5 0.2
Off-sites, f
OS
0.2 0.2
Buildings (including services),
f
BUILD
0.2 0.3
Site preparation, f
SP
0.1 0.1
Total capital cost of installed
equipment
3.4 2.7
Indirect cost
Design, engineering &
construction, f
DEC
1.0 0.8
Contingency (~10%of fixed capital
cost), f
CONT
0.4 0.3
Total fixed capital cost 4.8 3.8
Working capital (15% of total capital
cost), f
WC
0.7 0.6
Total capital cost, f
I
5.8 4.4
Points to be noted on various contributions to capital cost:
Based on carbon steel (CS), moderate operating P and T
Average values for all equipment types, whereas in practice the
values vary according to equipment type
Only guidelines & the individual components will vary from
project to project
Applicable to new design only
When equipment uses materials of construction other than
CS, or operating T are extreme, the capital cost are adjusted
accordingly (installation costs are unchanged):
( ) [ ]
+ + + + + + + + + +
+ =
i
i E WC CONT DEC SP BUILD OS UTIL ELEC INST ER
i E
i i
PIP T P M F
C f f f f f f f f f f
C f f f f C
,
,
) (
1
Total capital cost Total capital cost Total capital cost Total capital cost summary summary summary summary
Steps to estimate plant fixed capital cost C
F
:
i. List the main plant items & estimate their size
ii. Estimate the equipment cost of the main plant items
iii. Adjust the equipment costs to a common time basis
using a cost index (e.g. CE index)
iv. Convert the cost of the main plant items to carbon
steel, moderate P & moderate T
v. Select the appropriate installation sub-factors & adjust
for individual circumstances
vi. Select appropriate materials of construction, operating
P & operating T correction factors for each main items
vii. Estimate the total fixed capital cost
Example 1 (continue) Example 1 (continue) Example 1 (continue) Example 1 (continue)
A new heat exchanger is to be installed as part of a
large project.
Preliminary sizing of the exchanger has estimated
its heat transfer area to be 500 m
2
.
Material of construction: low grade stainless steel
Pressure rating: 5 bar
CE Index of Equipment: 441.9
Estimate the contribution of heat exchanger to the
total cost of the project.
Example 1 (continue) Example 1 (continue) Example 1 (continue) Example 1 (continue) solution solution solution solution
( ) [ ]
+ + + + + + + + + +
+ =
i
i E WC CONT DEC SP BUILD OS UTIL ELEC INST ER
i E
i i
PIP T P M F
C f f f f f f f f f f
C f f f f C
,
,
) (
1
( )
6
6
6
6
10 01 . 1 $
10 6 . 11 73 . 8
10 6 . 11 ) 7 . 0 4 . 0 0 . 1 1 . 0 2 . 0 2 . 0 5 . 0 1 . 0 2 . 0 4 . 0 (
10 6 . 11 7 . 0 1 9 . 2
=
=
+ + + + + + + + + +
+ =
Operating cost Operating cost Operating cost Operating cost
1. Raw materials cost:
The largest individual operating cost
Depends on whether the materials are being bought & sold:
Under a contractual arrangement
Raw materials might be purchased & products sold below or
above the open market price
Long-term contractual agreement may reduce profit
A degree of certainty over the project life
In open market
Fluctuate considerably with time.
Give the best purchase & selling prices
Uncertain economic environment.
Values of raw materials & products are found in trade journals:
Chemical Marketing Reporter
European Chemical News
Asian Chemical News
2. Catalysts & chemicals consumed in manufacturing
(other than raw materials):
Catalysts:
Need to be replaced or regenerated though the life of process
Homogeneous catalysts: replacement on continuous basis
Heterogeneous catalysts:
Regeneration/replacement is often carried out on an
intermittent basis
Replaced continuously if deteriorate rapidly & when
regeneration does not fully reinstate the catalyst activity
Chemicals consumed:
Chemicals used that do not form part of the final product
Example: acids & alkalis consumed to adjust pH of streams
3. Utility operating cost:
Most significant after raw material costs, especially
for commodity chemicals production.
Utility operating cost includes:
Fuel
Electricity
Steam
Cooling water
Refrigeration
Compressed air
Inert gas
3. Utility operating cost (continue):
Electricity:
More stable price than fuel costs under long-term contract
Hot countries: more expensive in the summer due to air
conditioning
Cold countries: more expensive in winter due to demand
from space heating
Cooling water:
Lowrelative to fuel & electricity
Depends on power for cooling tower fans & water circulation
pump
Refrigeration: to account for power of refrigeration
cycle
Low pressure (LP) steam:
Estimated from fuel costs assuming an efficiency of
generation & distribution losses
Generation efficiency (~85 - 90%) depends on the boiler
efficiency & steam consumed in boiler feed water production
Losses from the steam distribution system include:
Heat losses from steam distribution
Condensate return pipework to the environment
Steam condensate lost to drain & not returned to the
boilers and steam leaks
Efficiency loss ~10% overall efficiency for steam
generation & distribution ~ 75 - 80%
H82PLD - Plant Design Econ I - 34 H82PLD - Plant Design
High pressure (HP) steam:
Related to power generation capacity in steam turbine
HP steam: generated in the utility boilers
LP steam: generated by reducing P through steam turbines
to produce power.
Simple way for cost calculation:
Cost for HP steam = cost of fuel required to generate the HP
steam (including any losses)
Cost for LP mains = (high-pressure
mains) (power generated in the
steam turbine)
Power generated is calculated using
isentropic efficiency:
2 1
'
2 1
IS
H H
H H
=
S
H
X = 1.0
X = 0.8
X = 0.85
P
2
P
1
H
1
H
2
H
2
Real
expansion
4. Labour cost:
Difficult to estimate
Decision factors:
Batch or continuous processing
Level of automation
Number of processing steps
Level of production
5. Maintenance:
Solid handling: increase maintenance cost
Highly corrosive fluids: increase maintenance cost
Average: ~6% of fixed capital investment
Example 2: Steam cost Example 2: Steam cost Example 2: Steam cost Example 2: Steam cost
High pressure (HP) steam is generated in boilers at 41 barg
& superheated to 400
o
C.
Medium pressure (MP, 10 psig) & low pressure (LP, 3 psig)
steam are generated by expanding HP steam through a
steam turbine with 80% of isentropic efficiency.
Cost:
Fuel: $4/GJ
Electricity: $0.07/kW.h
Boiler feed water (BFW): 100
o
C; C
p
= 4.2 kJ/kg.K
Steam generation:
Efficiency: 75%
Distribution losses: 10%
Estimate steam cost for all 3 levels.
Example 2: Steam cost Example 2: Steam cost Example 2: Steam cost Example 2: Steam cost
Example 2 Example 2 Example 2 Example 2 Solution Solution Solution Solution
Costing for 41 barg steam @ 400
o
C
Steam enthalpy (from steam table): 3212 kJ/kg
Enthalpy for BFW: 4.2(100 - 0) = 420 kJ/kg
Heat duty to generate steam: 3212 420 = 2792 kJ/kg
Cost for steam generation:
steam HP /ton 89 . 14 $
75 . 0
10 4 2792
6
=

Costing for 10 barg steam:
41 barg steam is expanded to 10 barg in a steam turbine
Inlet condition from steam table:
H
1
= 3212 kJ/kg
S
1
= 6.747 kJ/kg.K
Outlet condition for isentropic expansion to 10 barg:
H
2
= 2873 kJ/kg
S
2
= 6.747 kJ/kg.K
For single stage expansion with 80% efficiency:
H
2
= H
1
(H
1
H
2
) = 2941 kJ/kg
Power generation (steam turbine): 3212 2941 = 271 kJ/kg
Value of generated power: 271/3600 x 0.07 = $5.27/ton
Steam cost = 14.89 5.27 = $9.62/ton
Costing for 3 barg steam:
10 barg steam is expanded to 3 barg in another steam turbine
Inlet condition from steam table:
H
1
= 2941 kJ/kg
S
1
= 6.88 kJ/kg.K
Outlet condition for isentropic expansion to 3 barg:
H
2
= 2732 kJ/kg
S
2
= 6.88 kJ/kg.K
For single stage expansion with 80% efficiency:
H
2
= H
1
(H
1
H
2
) = 2774 kJ/kg
Power generation (steam turbine): 2941 2774 = 167 kJ/kg
Value of generated power: 167/3600 x 0.07 = $3.25/ton
Steam cost = 9.62 3.25 = $6.37/ton
Additional note:
It is generally preferred to use saturated steamfor
process heating
However, if saturated steam is fed to the main, heat
losses from the main will cause undesirable
condensation in the main.
Standard practise: feed steam with a superheat of at
least 10
o
C to avoid condensation.
For MP steam, steam table shows the outlet T of
251
o
C, i.e. a superheat of 67
o
C
For LP steam, outlet T of 160
o
C, i.e. a superheat of
16
o
C
Depreciation Depreciation Depreciation Depreciation
Depreciation, D is often confusing due to several
definitions and applications.
For use with approximate profibility measurements,
depreciation is estimated as constant percentage (%) of the
total depreciable capital, C
TDC
(also known as straight-line
depreciation).
Direct plant (onsite) depreciation: 8% of (C
TDC
1.18
C
alloc
)
Allocated plant (offsite) depreciation (utilities and
related facilities): 6% of 1.18 C
alloc
where 1.18 factor accounts for the share of the contigency
and contractors fee.
Total Depreciable Capital Total Depreciable Capital Total Depreciable Capital Total Depreciable Capital
Total depreciable capital, C
TDC
= Cost of direct
permanent investment, C
DPI
+ cost of contingencies.
Direct permanent investment, C
DPI
is referred to the
total costs of total bare-module investment (C
TBM
), site
preparation or development (C
site
), service facilities
(C
serv
) and allocated cost of off-site facilities (C
alloc
).
Contingencies are unanticipated costs incurred during
construction.
Cost of contingencies: 15% of C
DPI
Constractor fee: 3% of C
DPI
Pre Pre Pre Pre- -- -tax & After tax & After tax & After tax & After- -- -tax Earnings tax Earnings tax Earnings tax Earnings
Pre-tax earning or profit also know as gross
earning or profit.
Gross earning or profit = Sales revenue, S Annual
production cost, C
After-tax earning or profit also know as net
earning or profit.
Net earning or profit = (1 t) Gross earning
where t is the income tax.
Total capital investment Total capital investment Total capital investment Total capital investment
Total capital investment, C
TCI
is also known as total
fixed capital.
C
TCI
is the total cost of total depreciable capital,
C
DPI
and non-depreciable items:
Cost of land
Cost of royalties (use of processes patented by others)
Cost plant startup
Profitability Analysis Profitability Analysis Profitability Analysis Profitability Analysis
Return of Investment (ROI) Annual interest rate
made by the profit based on total capital
investment (C
TCI
)
Payback Period (PBP) Time that required to
breakeven.
TCI
earning net
ROI
C
=
( ) on depreciati annual earning net
PBP
TDC
+
=
C
Profitability Analysis Profitability Analysis Profitability Analysis Profitability Analysis
Venture Profit (VP) Annual net earnings in
excess of a minimum acceptable return on
investment, i
min
Annualised cost (C
A
) Summation of the
production cost (C
Prod
) and a reasonable return
(i
min
) on the total capital investment (C
TCI
)
TCI min
earnings net VP C i =
TCI min Prod A
C i C C + =

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H82PLD - Plant Design Econ I - 2

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