Capital Cost Estimating for Chemical Engineers David Mody.
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Transcript of Capital Cost Estimating for Chemical Engineers David Mody.
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Capital Cost Estimating for Chemical Engineers
David Mody
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Purpose Context of the Capital Cost Different Methods of Capital Cost
Estimating
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Economics Question: Why build a chemical
process?
Investment Decision: Chemical plant investment or Gov’t bond?
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Project Evaluation Does the revenue we generate warrant
the initial outlay of money?
Cash Flow Diagram
-500
150130110 90 70 50 30 10 0 0 0
-600
-400
-200
0
200
1 2 3 4 5 6 7 8 9 10 11 12
Time Period
Cas
h F
low
($)
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Project Balance Sheet Summary Of The Economics
Capital Cost (fixed and working) Variable Costs
Raw Material Costs / lb of product By-Product Credits Utility Costs Labour Maintenance Depreciation
Fixed Costs
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Capital Cost Estimating Also Known as the “Initial
Cost” Can be a strong or weak
factor to the overall economics
Requires 2 parts engineering, 1 part hand waving
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The Total Estimate
•Equipment CostEquipment Cost
•bulk materials & labour to installbulk materials & labour to install
•off-sites (pipe racks, rail spurs …)off-sites (pipe racks, rail spurs …)
•engineering, freight, insurance, engineering, freight, insurance, overheadoverhead
•first fill of plant, taxes, dutiesfirst fill of plant, taxes, duties
•escalationescalation
TOTAL TOTAL PROJECTPROJECT
COSTCOST
•DIRECT FIELD COSTSDIRECT FIELD COSTS
•INDIRECT FIELD COSTSINDIRECT FIELD COSTS
•CONTINGENCY AND FEESCONTINGENCY AND FEES
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Types Of Estimates Educated Guess
Capacity Factor
Equipment Factored
Semi Detailed
Detailed
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£¢The Time Accuracy of Estimates
% Time vs Estimate Accuracy & % Completion
0102030405060708090100
0 20 40 60 80 100
Time (% of total schedule)
Est
imat
e A
ccu
racy
0102030405060708090
100
% W
ork
Co
mp
lete
d
Construction Begins
Project Completion
Equ
ipm
ent
Fac
tore
d
Cap
acity
Fac
tore
d
Sem
i Det
aile
d
Det
aile
d
Work Completed
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£¢Capacity Factored Estimates The Capacity factor estimate has two reqt’s:
1) The Plant you intend to build has a sister plant, at a different capacity, and
2) The sister plant was built at another time and thus inflation must be dealt with.
Part 1) The 6/10th’s rule - corrects capacity
Cost of New Plant =Capacity of New Plant
Capacity of Similar Plant
0.6 Cost of Similar Plant
X
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Capacity Factor The exponent (0.6)
Product Process Route ExponentEthylene Refinery Gases 0.85Acetaldehyde Ethylene 0.70Ammonia Steam Reforming 0.70Phosphoric Acid Calcium Phosphate/H2SO4 0.60Methanol CO2, nat gas and steam 0.60Formaldehyde Methanol 0.55
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£¢Capacity Factor - Cost Indices Part 2) Correct for Inflation
Use compound interest laws (1 + 4%)years
Chemical Engineering Plant Cost Index Located in the back of the McGraw Hill magazine
“chemical Engineering” Ratio cost index values
Marshall and Swift Index Indices are dangerous to use beyond a 5 year
window changes in technology, enviro req.'s etc.
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£¢Capacity Factor - Cost Indices Chemical Engineering Magazine
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Capacity Factor A plant was built in 1995 with a capacity of 10
million lb/hr at a cost of $20 million. We would like to build a similar process in 2002, but with a capacity of 17.5 million lb/hr. What would the cost be?
Cost in 1995 dollars = (17.5/10)0.6 * $20 million = $28.0 million
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Capacity Factor Correct for Inflation
The CECPCI for 1995 was 381.1, The CECPCI for July of 2001 is 395.3 and for the year 2000 394.1. We judge the CECPCI for 2002 to be 398.
Therefore the cost to build the plant in 2002 is: Cost in 2002 dollars = $28.0 million *
(398/381.1) = $29.2 million
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Capacity Factor Other Factors can be brought into the
equation such as: location factors weather
Where Technology, Environmental Regulations or Safety Aspects have changed the process this estimate may not be very accurate.
Test the sensitivity of the overall economics to Capital Cost
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£¢Equipment Factored Estimates Types
Lang Factor Equipment Factored, equipment costs
estimated (parametric equations) Equipment Factored, with major
equipment quotes
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Total Capital Cost = Flang * (Sum Of Purchased Cost of Equipment)
Equipment Factored Estimates
Plant Type Lang FactorFluid Processing Plant 4.74, usually rounded to 5.0Solid-Fluid Processing Plant 3.63Solid Processing Plant 3.10
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£¢Equipment Factored Estimates• DIRECT FIELD COSTS (50%)
• INDIRECT FIELD COSTS (32 %)
• CONTINGENCY AND FEES (15% + 3%)
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£¢Equipment Factored Estimates Direct costs - everything associated with
the equipment and it's physical installation. Equipment itself Labour to mount and install the equipment Piping, instrumentation around the
equipment Concrete and steelwork required to hold the
equipment in place Electrical equipment required to run the
equipment.
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£¢Equipment Factored Estimates InDirect costs
Freight, insurance and taxes for the equipment construction period
Construction overhead - vacation, sick leave, workman's compensation etc.for the labour personal an all costs associated with construction supervisory personnel
All engineering costs
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£¢Equipment Factored Estimates Contingency - a factor to cover
unforeseen circumstances. loss of time due to storms strikes small changes in design, and unpredictable price increases.
Fee
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£¢Equipment Factored Estimates• DIRECT FIELD COSTS (50%)
• Equipment (20%)
• Field Labour & Material to install equip. (30%)
• INDIRECT FIELD COSTS (32 %)
• CONTINGENCY AND FEES (15% + 3%)
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£¢Equipment Factored Estimates Further refinement of the direct field
costs has shown that each type of equipment (pump, column, exchanger) has a it’s own factor to obtain direct field cost.
Tanks and Vessels Columns and Trays Pumps and Compressors Exchangers Heaters
Direct Field Cost
x x
FactorsFactors=
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EQUIPMENTFACTOR
INSTALLEDCOST
PURCHASE COST
Equipment Factored Estimates
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Cost $9850Cost $9850 Installed Cost $36,500Installed Cost $36,500
Equipment Factored Estimates
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Equipment Factors
Shop Fab. Vessels Compressors Exchangers Fired Heaters Pumps Material Handling
Equipment
2.0 - 2.51.5 - 2.51.7 - 2.51.7 - 2.52.5 - 3.51.5 - 3.0
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Total Plant CostTotal Plant Cost = (Direct Field Cost + Stuff) x
Factors
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£¢“Off Sites”
Rail Spurs
Office Bldg
Pipe Racks
Cooling Tower
Rail Car Loading
Steam Boilers
Fire Water Sys
Nitrogen Plant
InsideBattery Limits
38
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Direct Field Cost (DFC)Direct Field Labour (DFL)
Allowances
Indirect Field Cost (IFC)
Home Office Engineering
Total Project Cost (ITC)
0.25 x DFC
1.0 to 1.6 x DFL
0.2
5 x
D
FC
Equipment PurchasePrice X
Equipment Factor
“Off Sites” Cost
1.18 x
Equipment Factored Estimates
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Example A project is composed of the following
equipment: 5 pumps priced at $8000 each 2 distillation columns priced at $30,000
each 2 sets of distillation column trays at
$20,000 each 6 heat exchangers at $15,000 each What is the final project cost?
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ExampleQty Cost per Purchase Cost DFC
factorDFC
5 $8000 $ 40,000.00 2.5 $ 100,000.002 $30000 $ 60,000.00 3.2 $ 192,000.002 $20000 $ 40,000.00 1 $ 40,000.006 $15000 $ 90,000.00 2.5 $ 225,000.00
$ 230,000.00 $ 557,000.00
Lang Factor 4.74 DFL $ 139,250.00 Project Cost $1,090,200.00 IFC $ 194,950.00
Eng $ 139,250.00
Subtotal $1,030,450.00Allowance $ 185,481.00
TotalProject
Cost
$1,215,931.00
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£¢Equipment Factored Estimates Understanding What’s NOT included in
the Factors is Critical! Suffers from poor accuracy if equipment
is missing
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Heat & Material Balance (simulation) Preliminary Equipment Sizing Materials Selection Equipment List 1st Draft P&ID’s - recommended Process Hazards Analysis - recommended
Factored EstimateEngineering Deliverables
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Equipment Costing Three Methods
Vendor Quotes Recent purchases Graphs
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Equipment Costing Graphical Methods
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Detailed Estimates Equipment factored estimates are plagued
by missing equipment due to inadequate design, industry averages, and historical numbers.
Detailed Estimates Require Cost and Quantity of
Concrete, wire, instruments, structural steel etc. etc.
Require extensive engineering effort
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£¢Capital Costs - Working Capital Usually costs that are not lost forever
(i.e. the first fill of chemicals, solvents) when the plant is shut down
Typically: 1 month of raw materials inventory 2 to 3 months of product inventory
Usually 10 to 20 % of fixed capital
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Types Of Estimates Educated Guess
Capacity Factor cost=capacity ratio0.6
Equipment Factored Lang Factor
Individual Equipment factors
Semi Detailed
Detailed
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Kingston
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Evaluation
Cash Flow Diagram
-500
150130110 90 70 50 30 10 0 0 0
-600
-400
-200
0
200
1 2 3 4 5 6 7 8 9 10 11 12
Time Period
Cas
h F
low
($)
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Operating Cost Estimates Yearly Cash flow has two components
revenue - from sales expenses - from operations
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Fixed Capital 3,578$ thousands
Production Rate 50,000 ton/yr
$ thousands/yr $/ton
% of Gross Sales
Gross Sales 30,000.00$ 600 100%
Expenses1 Raw Materials 21,222.00$ 424.4 70.7%2 Utilities 588.60$ 11.8 2.0%3 Operating Labour 98.00$ 2.0 0.3%4 Indirect Labour 14.70$ 0.3 0.0%5 Maintenance 214.68$ 4.3 0.7%6 Supplies 32.20$ 0.6 0.1%7 Laboratory 19.60$ 0.4 0.1%8 Patents 836.51$ 16.7 2.8%9 Overhead 196.43$ 3.9 0.7%
10 Admin Cost 49.11$ 1.0 0.2%11 Local Taxes 71.56$ 1.4 0.2%12 Distribution and Selling 2,788.38$ 55.8 9.3%13 R&D 1,394.19$ 27.9 4.6%14 Depreciation 10% 357.80$ 7.2 1.2%
Total Expenses 27,883.75$ 557.7 92.9%Net Annual Profit 2,116.25$
Income Taxes 634.87$ 30%After Tax Profit 1,481.37$
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NPV and IRR AnalysisFixed Capital $3,578.0
Working Capital $7,015.0year Operating Factor Yearly Cash Flow
0 0% -$1,1931 0% -$2,3852 70% -$5,5343 80% $1,6934 90% $1,9055 100% $2,1166 100% $2,1167 100% $2,1168 100% $2,1169 100% $2,116
10 100% $2,11611 90% $8,920
MARR NPV10% $3,690.8515% $1,084.6925% -$1,336.78
IRR : 18.3%
Raw Material CostsVariation from Base Raw Material Costs
-20% $16,977.600% $21,222.00
20% $25,466.40
IRR Payback Period NPV @25%69.3 2 9,066.00$ 18.3 3 1,337.00-$
0 infinite 11,740.54-$
Scenarios:
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Risk Analysis Test a range of values and determine the
range of Outputs (Tornado Plots) Develop 3 scenarios
“dismal decades” “best guess” “midsummer nights dream”
Combine the relevant parameters Determine an IRR and NPV under these
conditions. If they still exceed minimum requirements the project is acceptable.
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Risk Analysis Monte Carlo
A more sophisticated method that attempts to predict statistically the probability of a range of IRRs or NPVs.
requires not only the range of values but also an idea of the probability of these values occurring.
For instance if we think our initial cost will be $10MM and it’s likely to be +/- 10% but unlikely to be more than +/- 50%.
Probability
-50% -10% +10% +50%
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Risk Analysis There are functions built into Excel to
generate a gaussian distributed value based on random value NORMINV(probability,mean,standard_dev)
Commercial Software for Monte Carlo Calculations Refer to programs such as @risk and
Crystal Ball http://www.palisade.com/html/risk.html http://www.decisioneering.com/crystal_ball/
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Summary Whew… it’s been a long one By now we should have
A way of determining a rough capital cost
An analysis of the whole Sheebang
So Long….