lec 1 fixed capital cost estimation

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  • PROC2089 Process Plant Design

    Course co-ordinator: Dr. Raj Parthasarathy

  • What is this course about?(Objectives)

    1. Process Plant Economics Economic analysis

    Helps to determine whether a project is profitable or not Estimation of fixed and operating costs (expenses) Estimation of revenue (income) Estimation of profits (= income expenses) for many years Overall profitability

  • 2. Design (Process equipment design)

    Column design Plate column design

    Detailed design of columns with plates More than diameter and height calculations (which is known as sizing) Plate design

    Packed column design Detailed design of column with packing materials Diameter and height calculations Height is calculated using empirical correlations ( not using theoretical or graphical

    methods) Easy for computer (spreadsheet calculations)

    Heat exchanger design More than heat exchanger surface area calculation Shell and tube heat exchangers Shell and tube diameters are calculated Number of tubes are calculated Number of tube passes are calculated

  • Assessment

    Assessment Components % of OverallMarks

    1. Individual assignment 1 ( Week 4 - Economic analysis using spreadsheet calculations)

    7.5%

    2. Week-in-industry (Week 7 whole week) 10%3. Test (Week 8 Closed-book) 15%4. Individual assignment 2 ( Week 9 Plate column design using Hysys simulation and spreadsheet calculations)

    7.5%

    5. Final examination ( 2 hours, all topics in the course are included, open-book examination)

    60%

  • Prescribed text book

    Sinnott, R. K. and Towler, G., Chemical Engineering Design, 2009, Butterworth-Heinemann.

    Copies available in RMIT Bookshop Required definitely for the open-book final examination Useful for your future courses and career as a design reference book

    Other useful references:1. Brennan, D., (1998), Process Industry Economics - An international perspective,

    IChemE.2. Turton, R., Bailie, R.C., Whiting, W.B. and Shaeiwitz, J.A., Analysis , Synthesis, and

    Design of Chemical Processes, 2009, Prentice Hall. N.J., U.S.A.3. Peters, M.S., Timmerhaus, K.D., and West, R.E., (2003), Plant Design and Economics

    for Chemical Engineers, McGraw Hill.

  • Process Plant Economics(Weeks 1 to 3)

    Topics to be covered:1) Fixed capital estimation- (Week 1)2) Time value of money- (Week 1)3) Operating cost and working capital estimation- (Week 2)4) Depreciation - (Week 2)5) Cash flow analysis - (Week 3)

  • Estimation of fixed capital cost

  • Source: The Australian, Dec 2011

  • Capital investment in process industries is required for

    new projects sustaining existing plants during their operating life modifying an existing plant to accommodate changes in

    feedstocks, product quality, specifications, available technology and operating cost structure

  • Purposes of detailed capital cost estimate

    to decide whether or not to proceed with a new plant or plant modification

    to support the allocation of funds to an approved project and then to control their subsequent disbursement

  • Sources of capital

    Equity funds - Funds owned by the company derived from shareholders or retained earnings

    Loan funds - Funds borrowed from financial institutions such as banks and insurance companies

    Whatever be the source of capital, these funds have a cost (such as interest) which is known as cost of capital.

  • Capital requirements for process plants

    Land costs Fixed and capital investment into plant and buildings Start-up capital Working capital

    Total investment = Land cost + Fixed capital + Start-up capital + Working capital

  • Land costs

    Depends on whether the land is an existing site or a new site For existing site, no cash flow For a new site, land cost is a function of size and location New sites are also termed as greenfield sites Existing sites are known as brownfield sites Land cost is usually negligible when compared with fixed capital

    costs of plant and buildings

  • Fixed Capital

    Total cost of the plant before start-up Cost paid to the contractors Unrecoverable

    Fixed capital investment is estimated for1. Battery limits2. Offsites

    Battery Limits: Geographical boundary, real or imaginary, around the

    processing plant which converts raw material into finished products

    Inside battery limits (IBL) - processing plant Outside battery limits (OBL) - also known as offsites, includes

    storage, utilities, effluent treatment facilities, service facilities

  • IBL and OBL

    Ref: Wilson, B. (2008),Detail Engineering and Lay-out of Piping Systems, 1st edition

    Inside battery limits

    Outside battery limits or offsites

  • Start-up capital

    Includes all nonrecurring costs between the completion of plant and commencement

    Within 1% to 10% of fixed capital Higher costs, if technology is new

    Working capital

    Additional investment needed over and above the fixed capital Capital required to start the plant and operate it until income is

    earned

  • IBL Plant Cost Estimate

    Types and classification of capital cost estimates

    1. Order of magnitude estimate2. Study estimate3. Preliminary estimate4. Definitive estimate5. Detailed estimate

  • Classification of capital cost estimates

    Nomenclature Probable range of accuracy

    Cost as % of project expenditure

    Detailed estimate 2 to 5% 5 to 10%

    Definitive estimate 5 to 15% 1 to 3%

    Preliminary estimate 10 to 25% 0.4 to 0.8%

    Study estimate 20 to 30% 0.1 to 0.2%

    Order of magnitude estimate

    30 to 50% 0 to 0.1%

    What you do in your University courses

  • Capital cost estimating methods

    1. Using historical costs (order-of -magnitude estimate or exponential method) Involves extrapolation from known plant cost data and has a

    potential accuracy of 30 to 50%

    2. Factorial method (study estimate) Involves applying factors to PEC (Purchased Equipment Cost) Accuracy 20 to 30%

    - Bare module factor method

  • Capital cost estimation using historical costs(Order-of-magnitude estimate)

    Performed at the preliminary stage No flowsheet is required

    Exponential method(Capital cost estimation by extrapolation from known plant cost data)Order-of-magnitude estimate, approximate and applicable over a limited range

    whereIP = investment for a proposed plantIR = investment for a reference plantQP, QR = capacities of proposed and reference plants, respectivelyb = exponent, usually 0.5 to 0.6Fp, FR = cost inflation index values for the proposed and reference years, respectivelyL = Location factor

    II

    = QQ

    FF

    LPR

    P

    R

    bP

    R

  • Cost indices (or) Inflation indices (Fp and FR)

    Published in the journal Chemical Engineering Published by McGraw-Hill

    www.che.com

    Chemical Engineering Plant Cost Index (CEPCI): Weighs numerous components of plant, equipment and constructions

    costs Includes engineering costs as well as those for materials,

    manufacturing and installation There are two chemical engineering indices

    i) plantii) purchased equipment

    CEPCI can be found Using RMIT libraray database Proquest (choosing Proquest science journals) Using Google search bythe key word Chemical Engineering Plant Cost Index

  • Chemical Engineering Plant Cost Index (CEPCI)

    Ref: Chemical Engineering, January, 2012

  • Ref: Chemical Engineering, January 2012

    Marshall & Swift cost index values are another popular cost indices used widely in the US

  • Influence of location on capital cost estimate

    L = location factor

    Note that both costs are expressed in the same currency L values vary from 0.8 to 1.8 L values vary with time

    country referencein plant ofCost country proposedin plant ofCost L =

  • Location factors

    Sinnott, R.K. and Towler, G., (2012), Chemical Engineering Design, Page 338

  • Tutorial question on Fixed capital cost estimation usingexponential method

  • Bare module cost method

    (Reference: Turton, R., Bailie, R.C., Whiting, W.B. and Shaeiwitz, J.A., Analysis , Synthesis, and Design of Chemical Processes, 2009, Prentice Hall. N.J., U.S.A.)

    Bare module cost = direct costs + indirect costs involved in purchasing and installing equipment

    (or)

    Bare module cost = Purchased equipment cost + installation cost

    Base conditions for bare module cost for equipment:1. Unit is fabricated from carbon steel2. Unit is operated at near ambient pressure

    (i.e., P = 1 bar)

  • Bare module cost method

    Bare module cost (installed cost) for each piece of equipment CBM :

    CBM = Cpo FBM

    whereCBM = Bare module equipment cost (= direct + indirect costs)CPo = Purchased cost for base conditionsFBM = Bare module cost factor (= multiplication factor to account for the installation etc. (or) installation cost)

  • Total module cost CTM (or ) Fixed capital cost

    C18.1C1

    i BM,TM = =n

    i

    where n = total number of process equipmentCTM includes 15% contingency and 3% contractors fee

    Grass roots cost CGR C35.0CC

    1i BM,TMGR += =

    n

    i

    CGR is for greenfield project It includes costs for land, site development, auxiliary buildings,

    and off-sites and utilities

  • Example:

    Estimate the bare module cost for a heat exchanger with the following specifications:

    - Horizontal shell and tube heat exchanger- Area = 20 m2- Design pressure < 10 bar- Carbon steel - Two-pass, internally bolted, floating head

    Solution:

    CBM = CoPFBM = CoP(B1+ B2FMFp)where

    FM = material factorFp = pressure factorB1 and B2 = constants

  • Estimation of purchase cost (Cp) for heat exchangers

    These graphs give purchase cost based on heat exchanger surface area

    But they are for carbon steel heat exchangers operating at 1 bar

  • Determination of installation factor CBM

  • Material factor, FM

  • Material factor FM

  • Pressure factor Fp

    where P = pressure, barg

    C1, C2, and C3 = constants.

  • Feed preheater

    Area = 20 m2P = 10 barMOC = Carbon SteelFloating head type

  • Bare module factor method Tutorial question

  • Tutorial question on Fixed capital cost estimation usingexponential method