MEE 320 Process Plant Economics

Dr Anand V P GurumoorthyAssociate Professor

Chemical Engineering DivisionVIT University

Vellore – 632 014anand.g@vit.ac.in

Textbooks

• James R Couper, Process Engineering Economics (2003)

• Max S Peters, Klaus D Timmerhaus, and Ronald E West, Plant Design and Economics for Chemical Engineers, 5th Ed. (2004)

• Harry Silla, Chemical Process Engineering: Design and Economics (2003)

Introduction

• Economics is the engine that drives industry.• ChE students study courses in chemistry, physics,

math, thermodynamics, kinetics, transport theory, unit ops and design.

• ChEs learn to design and operate chemical plants.• As the final process design stage is completed,

we need to make cost estimations and profitability analysis of investments.

• This is also the purview of ChEs.

Courses Usually Taken

Need for Engineering Economics

• ChEs employ economics in:– Preparation of capital cost estimates– Preparation of operating expense estimates– Preparation of profitability analyses– Performing sensitivity and uncertainty analysis

considering many alternatives• ChEs should have a working knowledge of:– Balance sheets– Income statements– Financial analyses of a corporate venture

Steps in an Economic Evaluation

• First product is to be decided and a process is to be suggested.

• If promising, crude estimates of the capital required and the operating expenses may be made.

• If not feasible, it may be abandoned or alternate processes may be considered.

• As no. of technical alternatives are developed, economic issues become dominant.

Steps in an Economic Evaluation• Suppose the original process appears promising.• A preliminary economic study of capital costs,

operating expenses, and profitability to be prepared.• Simultaneously, marketing personnel determine

potential sales volume.• If results not favorable, project may be abandoned or

recycled back to a previous step for further study.• If favorable, more detailed capital costs, operating

expenses and market data are obtained.• Again check for feasibility of process.• Again if favorable, go to next level of detail.

Importance of Economic Evaluation

• At initial stages of a project, there is a tendency to be optimistic about markets.

• Product prices, capital costs, operating expenses are underestimated.

• Cash flow and profitability are off the mark.• As the project proceeds through various stages of

development, the costs tend to escalate and the returns diminish.

• Of approximately, 100 project ideas, perhaps 2 may become operating plants.

Career Path of a Chemical Engineer

Career Path of a Chemical Engineer• First ten years, technical aspects.• Next ten years, economics and financial aspects play an

important part:– Preparation of capital cost and operating expense estimates.– Preparation of feasibility studies– Simple optimization studies

• After 10 – 20 years, move to upper-level mgmt position:– Handling of personnel– Handling of economic and sociopolitical issues.

• However, economics underlies decisions in all these areas.