Lecture 11 - Process Economics I

8/11/2019 Lecture 11 - Process Economics I

1/12

Process economics IProcess economics IProcess economics IProcess economics I

H82PLD - Plant Design Econ I - 2

Lecture outlineLecture outlineLecture outlineLecture outline

Capital cost for new design

Operating cost

Depreciation

Pre-tax and after-tax earning

Profitability analysis


IntroductionIntroductionIntroductionIntroduction Purpose of chemical processes: to make $$

3 basic roles of process economics in processdesign: 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 investmentBattery limits investmentBattery limits investmentBattery limits investment Battery limits: geographical boundary that defines process

manufacturing area (converting raw materials products)

Battery limits investment requires the purchase ofindividual 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


2/12


Battery limitsBattery limitsBattery limitsBattery limits

( Seider et al., 2003)


Cost vs. capacity chartsCost vs. capacity chartsCost vs. capacity chartsCost vs. capacity charts

Seider et al. (2003)








3/12





Equipment purchase costEquipment purchase costEquipment purchase costEquipment purchase cost Cost data can be expressed as power law of capacity:

where

CE = equipment cost with capacity Q;

CB = known base cost for equipment with capacity QB;

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 C1 = equipment cost in year 1; C2 = equipment cost inyear 2; I1 = cost index in year 1; I2 = cost index in year 2

M

Q

QCC

=

B

BE

=

2

1

21 I

ICC


Equipment purchase costEquipment purchase costEquipment purchase costEquipment purchase cost Commonly use cost index:

Chem Eng (CE) Indices (Ibase = 100 @ 1958; ChemicalEngineering magazine) Most useful, covering heat exchangers, tanks, pipe, valve &

fittings, process instruments, pump & compressors, structuralsupport, etc.

Different indexes are combined CE Index of Equipment

Marshall & Swift (MS) Indices (Ibase = 100 @ 1926;Chemical Engineering magazine)

Nelson-Farrar (NF) Refinery Cost Indices (Ibase = 100@ 1946; Oil & Gas Journal)


Capital cost correlations (CECapital cost correlations (CECapital cost correlations (CECapital cost correlations (CEindex = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)


4/12


Capital cost correlations (CECapital cost correlations (CECapital cost correlations (CECapital cost correlations (CEindex = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)index = 585.7 @ Annual 2011)


A comparison between indexesA comparison between indexesA comparison between indexesA comparison between indexes

US Consumer PriceIndex (measurementof inflation rate)

Engineering News-Record Construction cost

index average for allindustrial construction



Example 1 : Heat exchangerExample 1 : Heat exchangerExample 1 : Heat exchangerExample 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 m2

. 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 1Example 1Example 1Example 1 solutionsolutionsolutionsolution Capital cost estimation using power law:

Up-to-date costing using CE Index:

=

1

1E I

ICC E

M

Q

QCC

=

B

BE

468.0

401x4.11$

80

50001x82.3 =

=

44 10x3.15$8.4357.58510x4.11 =

=


5/12


Equipment purchase costEquipment purchase costEquipment purchase costEquipment purchase cost Material of construction

influences significantly

equipment capital costcorrection factorfM is used

Cost factors for shell-and-tube heat exchanger aremore complex.

Typical equipment materialsMaterial fMCarbon steel 1.0

Aluminium 1.3Stainless steel (low grades) 2.4Stainless steel (high grades) 3.4Hastelloy C 3.6Monel 4.1Nickel & inconel 4.4Titanium 5.8

Pressure vessel & columnsMaterial fMCarbon steel 1.0

Stainless steel (low grades) 2.1Stainless steel (high grades) 3.2Monel 3.6Inconel 3.9Nickel 5.4Titanium 7.7

Shell-and-tube heat exchangerMaterial fMCS shell and tubes 1.0CS 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


Equipment purchase costEquipment purchase costEquipment purchase costEquipment purchase cost

Influence of operating

pressure: thicker vesselwalls to withstand increasedpressure pressurecorrection factorfP

Influence of operatingtemperature: decrease in

allowable stress astemperature increasestemp correction factorfT

Correction factor for pressure

Design pressure (bar absolute) fP

0.01 2.00.1 1.3

0.5 7 1.0

50 1.5

100 1.9

Correction factor for temp

Design temperature (C) fT

0 100 1.0

300 1.6

500 2.1


Equipment purchase costEquipment purchase costEquipment purchase costEquipment purchase cost 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 batterylimits) = 2 ~ 4 times of equipment purchase cost.


Utility investmentUtility investmentUtility investmentUtility 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)


6/12


7/12


8/12


Operating costOperating costOperating costOperating cost1. 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 orabove 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


Operating costOperating costOperating costOperating cost2. 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 anintermittent 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


Operating costOperating costOperating costOperating cost3. Utility operating cost:

Most significant after raw material costs, especiallyfor commodity chemicals production.

Utility operating cost includes: Fuel

Electricity

Steam

Cooling water

Refrigeration

Compressed air

Inert gas


Operating costOperating costOperating costOperating cost3. 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 demandfrom space heating

Cooling water: Low relative to fuel & electricity

Depends on power for cooling tower fans & water circulationpump

Refrigeration: to account for power of refrigerationcycle


9/12


Operating costOperating costOperating costOperating cost3. Utility operating cost (continue):

Low pressure (LP) steam: Estimated from fuel costs assuming an efficiency ofgeneration & distribution losses

Generation efficiency (~85 - 90%) depends on the boilerefficiency & 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 theboilers and steam leaks

Efficiency loss ~10% overall efficiency for steamgeneration & distribution ~ 75 - 80%

H82PLD - Plant Design Econ I - 34H82PLD - Plant Design

Operating costOperating costOperating costOperating cost3. Utility operating cost (continue): 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 turbinesto produce power.

Simple way for cost calculation:

Cost for HP steam = cost of fuel required to generate the HPsteam (including any losses)

Cost for LP mains = (high-pressure

mains) (power generated in thesteam turbine)

Power generated is calculated using

isentropic efficiency:

21

'

21IS

HH

HH

=

S

H

X = 1.0

X = 0.8X = 0.85

P2

P1H1

H2

H2

Realexpansion


Operating costOperating costOperating costOperating cost4. 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 costExample 2: Steam costExample 2: Steam costExample 2: Steam cost High pressure (HP) steam is generated in boilers at 41 barg

& superheated to 400oC.

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): 100oC; Cp = 4.2 kJ/kg.K

Steam generation: Efficiency: 75%

Distribution losses: 10%

Estimate steam cost for all 3 levels.


10/12


Example 2: Steam costExample 2: Steam costExample 2: Steam costExample 2: Steam cost


Example 2Example 2Example 2Example 2 SolutionSolutionSolutionSolution Costing for 41 barg steam @ 400oC

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:

steamHP/ton89.14$75.0

1042792 6=


Example 2Example 2Example 2Example 2 SolutionSolutionSolutionSolution Costing for 10 barg steam:

41 barg steam is expanded to 10 barg in a steam turbine

Inlet condition from steam table: H1 = 3212 kJ/kg

S1 = 6.747 kJ/kg.K

Outlet condition for isentropic expansion to 10 barg: H2 = 2873 kJ/kg

S2 = 6.747 kJ/kg.K

For single stage expansion with 80% efficiency:

H2 = H1 (H1 H2) = 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


Example 2Example 2Example 2Example 2 SolutionSolutionSolutionSolution Costing for 3 barg steam:

10 barg steam is expanded to 3 barg in another steam turbine

Inlet condition from steam table:

H1 = 2941 kJ/kg

S1 = 6.88 kJ/kg.K Outlet condition for isentropic expansion to 3 barg:

H2 = 2732 kJ/kg

S2 = 6.88 kJ/kg.K

For single stage expansion with 80% efficiency:

H2 = H1 (H1 H2) = 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


11/12


Example 2Example 2Example 2Example 2 SolutionSolutionSolutionSolution Additional note:

It is generally preferred to use saturated steam forprocess heating

However, if saturated steam is fed to the main, heatlosses from the main will cause undesirablecondensation in the main.

Standard practise: feed steam with a superheat of atleast 10oC to avoid condensation.

For MP steam, steam table shows the outlet T of251oC, i.e. a superheat of 67oC

For LP steam, outlet T of 160oC, i.e. a superheat of16oC


DepreciationDepreciationDepreciationDepreciation Depreciation, D is often confusing due to several

definitions and applications.

For use with approximate profibility measurements,depreciation is estimated as constant percentage (%) of thetotal depreciable capital, CTDC (also known as straight-linedepreciation).

Direct plant (onsite) depreciation: 8% of (CTDC 1.18Calloc)

Allocated plant (offsite) depreciation (utilities andrelated facilities): 6% of 1.18 Calloc

where 1.18 factor accounts for the share of the contigencyand contractors fee.


Total Depreciable CapitalTotal Depreciable CapitalTotal Depreciable CapitalTotal Depreciable Capital Total depreciable capital, CTDC = Cost of direct

permanent investment, CDPI + cost of contingencies.

Direct permanent investment, CDPI is referred to thetotal costs of total bare-module investment (C

TBM), site

preparation or development (Csite), service facilities(Cserv) and allocated cost of off-site facilities (Calloc).

Contingencies are unanticipated costs incurred duringconstruction.

Cost of contingencies: 15% of CDPI

Constractor fee: 3% of CDPI


PrePrePrePre----tax & Aftertax & Aftertax & Aftertax & After----tax Earningstax Earningstax Earningstax Earnings

Pre-tax earning or profit also know as grossearning or profit.

Gross earning or profit = Sales revenue, S Annualproduction cost, C

After-tax earning or profit also know as netearning or profit.

Net earning or profit = (1 t) Gross earning

where t is the income tax.


12/12


Total capital investmentTotal capital investmentTotal capital investmentTotal capital investment

Total capital investment, CTCI is also known as totalfixed capital.

CTCI is the total cost of total depreciable capital,CDPI and non-depreciable items: Cost of land

Cost of royalties (use of processes patented by others)

Cost plant startup


Profitability AnalysisProfitability AnalysisProfitability AnalysisProfitability Analysis Return of Investment (ROI) Annual interest rate

made by the profit based on total capitalinvestment (CTCI)

Payback Period (PBP) Time that required to

breakeven.

TCI

earningnetROI

C=

( )ondepreciatiannualearningnetPBP TDC

+

=C


Profitability AnalysisProfitability AnalysisProfitability AnalysisProfitability Analysis Venture Profit (VP) Annual net earnings in

excess of a minimum acceptable return oninvestment, imin

Annualised cost (CA) Summation of theproduction cost (CProd) and a reasonable return(imin) on the total capital investment (CTCI)

TCIminearningsnetVP Ci=

TCIminProdA CiCC +=

Documents

Lecture 11 - Process Economics I