ENCH497 Lecture 1 Capital Cost Estimation
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1 ENCH497 Process Management Economic Evaluation of Processes Capital cost Up-front investment Expenditure required to begin operations Operational costs of servicing debt/depreciation Operating costs Regular costs of operation Fixed versus variable Expenditure required to generate product Subtracted from income to calculate profit or return on original investment Financial and accounting approaches to assess value Structures and procedures to organize and motivate workers to safely and reliably make product(s) to generate satisfactory income ENCH497 Lecture 1 Capital Cost Estimation Conan Fee [email protected]
Transcript of ENCH497 Lecture 1 Capital Cost Estimation
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ENCH497 Process Management l Economic Evaluation of Processes
l Capital cost l Up-front investment l Expenditure required to begin operations l Operational costs of servicing debt/depreciation
l Operating costs l Regular costs of operation
§ Fixed versus variable
l Expenditure required to generate product l Subtracted from income to calculate profit or return on original investment
l Financial and accounting approaches to assess value l Structures and procedures
l to organize and motivate workers to safely and reliably make product(s) to generate satisfactory income
ENCH497 Lecture 1 Capital Cost Estimation
Conan Fee [email protected]
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Raw Materials Choice
Reactor Choice
Separation Train Product
Consider pre-conditioning
ie: remove impurities
now or leave until after reaction?
Mixture of product
by-products wastes
original feed impurities
Recycle Streams?
By-Products Wastes
Further Processing?
Conceptual Design
PFD
M & E Balances
Equipment Sizing
Process Economics
Quantify and characterise properties of components
Batch or Continuous?
Short Cut Design Methods Pumps and Heat Exchangers
Proceed to greater accuracy or Abandon Fixed Capital, Working Capital Operating Costs, Revenues
Computer Aided Design? Process Simulators? Manual Calculations?
Quantify phase, pressure, temperature, kinetics,
contacting patterns
Also Consider: Control Schemes Materials Requirements Energy Requirements
Process Costs l Capital Costs (Total Capital Investment or TCI)
l Fixed Capital l Design and Engineering, procurement, construction supervision l Equipment and installation l Piping and instrumentation, control l Buildings and structures l Auxilliary facilities – utilities, land, civil engineering works
l Working Capital l Startup l Initial catalyst charges l Raw materials and intermediates l Finished product inventories l Funds to pay the bills
l Operating Costs (Cost of Manufacture or Cost of Goods)
Sunk Costs
Costs recovered at the end of the project
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Cumulative Cash Flow Diagram for a Typical Project
A-B investment required for designing the plant B-C capital required to build and startup plant C-D process comes on stream and income is
generated. Net cash flow is positive but cumulative cash flow remains negative until original investment is paid off – the “payback” point or the “break-even” point
D-E Cumulative cash flow is positive and the process is making a return on investment
E-F cash flow may fall off towards the end of the project life –increased operating costs and falling sales volumes and price or more competition so the slope of the line changes
F cumulative cash position at the end of the project life. Sometimes the working capital is paid back at this time and some salvage value (so a small vertical line at point F)
Coulson and Richardson Volume 6, page 237
Accuracy and Purpose of Capital Cost Estimation l Preliminary (feasibility) Studies -30% to +60%
l PFD and operating costs l Major equipment costs l Factors to estimate remaining costs l Purpose: to test feasibility and decide between design alternatives
l Authorisation (budgeting) -15% to +20% l Authorisation of funds to proceed to more detailed design l Funds to cover ordering/cancellation of long-term deliveries
l Detailed (quotation) -3% to +5% l Project cost control l Contract fixing
The Cost Estimation Process itself costs 0.1 to 5% of total project cost
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How much does your client want to pay for
each stage?
The idea of preliminary estimates is to eliminate wasted investment
in poor ideas and to identify ventures worth further investment
Process Design Costs
Typical Design Costs
Cost of Project < $2M $2M - $10M $10M - $100M
Order-of-Magnitude estimate $3,000 $6,000 $13,000
Study estimate $20,000 $40,000 $60,000
Preliminary estimate $50,000 $80,000 $130,000
Definitive estimate $80,000 $160,000 $320,000
Detailed estimate $200,000 $520,000 $1,000,000
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Sources of Cost Information l Survey of sources
l Large organizations can gather this data internally l Supplier’s detailed quotations
l Limited life l Vary widely l Difficult to obtain unless purchase is likely
l Supplier’s budget quotations l No obligation estimates l Not as accurate as detailed quotations but better than most other
sources l Company records and personal cost books l Trade literature l Technical literature and textbooks
Equipment Costing Methods l Sources of information
l “Process Capital Cost Estimation for New Zealand 2004” by Bouman RW, Jesen SB and Wake ML, Published by SCENZ. Available free to all final-year BE (Chem) students on ENCH497 Learn site as a pdf. Interactive DVD version available from IChemE (NZ Branch).
l Textbooks: l Coulson & Richardson “Chemical Engineering”, Volume 6, 1st
Edtn 1983 – reprinted several times since, Butterworth-Heinemann.
l Seider, Seader and Lewin, “Product & Process Design Principles”, 2nd Edtn 2004, Wiley.
l Direct from manufacturers l Historical data (in-house knowledge)
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Examples of Cost Data
“Process Capital Cost Estimation for New Zealand 2004” by Bouman RW, Jesen SB and Wake ML, Published by SCENZ.
Adjusting Costs for Changes
Size or Capacity Inflation
Currency
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Capital Cost Adjustments l Size or Capacity
l “the six tenths rule”
6.0
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212 ⎟⎟
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SizeSizeCostCost
Capital Cost Adjustments l Inflation
l Cost Indices l Statistics NZ l Marshall & Swift
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Cost Indices
Annual Index: 2000 = 394.1 2001 = 394.3 2002 = 395.6 2003 = 402.0 2004 = 444.2 2005 = 468.2 2006 = 499.6 2007 = 525.4
CHEMICAL ENGINEERING PLANT COST INDEX (CEPCI) (1957-59 = 100) Nov.'08 Oct.'08 Nov.'07
Prelim. Final Final
CE INDEX 566.1 592.2 526.0
Equipment 681.3 720.0 624.4
Heat exchangers & tanks 655.8 711.7 593.5
Process machinery 641.1 664.7 597.9
Pipe, valves & fittings 831.8 864.0 731.1
Process instruments 415.8 439.0 416.9
Pumps & compressors 896.5 893.0 842.9
Electrical equipment 461.7 471.9 437.4
Structural supports & misc 718.0 771.8 660.4
Construction labor 325.5 326.2 317.9
Buildings 513.5 522.8 477.1
Engineering & supervision 350.6 351.3 357.0
Chemical Engineering publishes economic indicators every 2 weeks
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Capital Cost Adjustments
l Currency
l Overall
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currencyIndexIndex
SizeSizeCostCost
Example Estimate the Total Direct Costs (TDC) in the year 2000 for a plant to
produce 90 ton/day of chlorine and 100 ton/day NaOH. Assume continuous 330 days per annum production. The cost in 1995 (Ib = 381) to produce 360 and 400 lb/yr of Cl and NaOH, respectively, was $80M. In 2000, I = 394.
Solution Annual production rate of Cl in lb/yr = 90(2000)(330) = 59,400,000 lb/yr
M
MCTDC
28$381394
3604.5980$
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Total Process Cost Estimation
A collection of reactors and separators alone does not constitute a working plant
Battery Limits
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
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Total Capital Investment
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
Example – Heat Exchanger
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
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Bare Module Factors
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
Example – Ammonia Plant
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
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Example – Ammonia Plant (cont.)
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
Total Capital Cost Estimation l Lang Factors
l Account for l equipment erection (foundations and structural work) l piping (insulation and painting) l electrical power and lighting l instruments (local and control room) l process buildings and structures l ancillary buildings, offices, labs, workshops l storages (raw materials and finished products) l utilities (steam, water, air, firefighting l site and site preparation
l requires l process design l M&E balances l Equipment sizing – “free on board” (f.o.b.) costs of all major equipment
must be known l Materials of construction
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The Lang Factor Method 1. Prepare M&E balances – PFD’s, size major
equipment and select materials of construction 2. Estimate purchase cost of major equipment plus
5% for freight 3. Calculate total physical plant cost using Lang
Factors 4. Calculate indirect costs from direct costs 5. Add 3 and 4 to obtain total fixed capital (FC) 6. Estimate working capital (10 to 20% of FC) 7. Add 5 and 6 to get total initial investment in project
Lang Factors l Determine the total major equipment cost, allow for
freight and then multiply by an appropriate Lang Factor
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
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Detailed Lang Factors
Seider, Seader and Lewin, “Product & Process Design Principles” 2nd Edtn 2004, Wiley
Use A Form to Organise Data
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You should use the Lang Factor Method
for your Design Projects
