Economics Towler

ChE 473K Plant DesignR. B. Eldridge

Industrial Design Process

Economic Analysis

Safety / Environmental / Ethics Issues

Nuts and Bolts Equipment Design

Process Simulation

Feasibility Level Design ProblemsCourse Outline

Course ObjectivesProvide a real-world perspective on process design

Introduce design and selection of equipment

Give insight into practical constraints that govern design decisions

Help you translate knowledge into practice & start solving real problems 2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy

Why Are ChEs Paid So WellTo Work in So Many Different Industries?They can start from a vaguely defined problem statement such as a customer need or a set of experimental results

From the problem statement they develop an understanding of the important underlying physical science relevant to the problem

Using this understanding they can develop a plan of action and set of detailed specifications, which if followed will lead to a predicted financial outcome 2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy

Why Are ChEs Paid So WellTo Work in So Many Different Industries?They can start from a vaguely defined problem statement such as a customer need or a set of experimental resultsFrom the problem statement they develop an understanding of the important underlying physical science relevant to the problemUsing this understanding they can develop a plan of action and set of detailed specifications, which if followed will lead to a predicted financial outcome 2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy

The Design ProcessProblem statementImplementationPlanFinancialoutcome 2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign Work ProcessDetermine Customer NeedsSet DesignSpecificationsR&D if NeededEvaluate Economics& Select Design Predict FitnessFor ServiceBuild PerformanceModelsGenerate DesignConceptsProcurement& ConstructionBegin OperationCustomerApprovalDetailed Design &Equipment SelectionCommon to all design problems in all industries

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhy do we care about financial outcome?


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyFinancial OutcomeIf you had $10 million, how would you rather invest it?

In a FDIC insured savings account at 2% p.a.

In equities (average return 9% over 25 years)

In a project using proven technology with 12% annual return in an established market

In a project with new technology with 90% probability of technical success, and 20% annual return in an established market

In a project with unproven new technology in a new market that is forecast to grow 200% per year but hasnt taken off yet

In a high-stakes poker game in Las Vegas

IncreasedRisk


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyIndustrial ProcessDesign


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy1. Design Work ProcessDetermine Customer NeedsSet DesignSpecificationsR&D if NeededEvaluate Economics& Select Design Predict FitnessFor ServiceBuild PerformanceModelsGenerate DesignConceptsProcurement& ConstructionBegin OperationCustomerApprovalDetailed Design &Equipment SelectionCommon to all design problems in all industries


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyHow do companies implement this design process?


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy2. The Design TeamProjectSponsorContractorsCivilEngineersBusinessInputR&DSpecialistsTechnicalSpecialistsCost EngineerControlEngineerConsultantsMechanicalEngineer(s)ProcessEngineer(s)ProjectManager


The Team Approach

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copySpecialization and OutsourcingOperating CompaniesOwn plantsProduce chemicalsHigh sales revenueMargins & return on assets (ROA) vary by sector

Technology VendorsOwn patentsSell catalysts, enzymes, equipment, licensesSales volume lowMargins, ROA usually high

Engineering & Construction CompaniesExperienced project managersHighly competitive & cost effectiveMedium sales volume, low margins


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyCompany Performance by SectorNotes:

Data from www.CNN.money.com as of 7.2.07Oil industry is usually not so profitable as during 2005-2007Technology companies are usually smaller, and are often subsidiaries or privately held. Financial data are often not publicly available.


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyIn the 1980s most projects were done in houseProjectSponsorContractorsCivilEngineersBusinessInputR&DSpecialistsTechnicalSpecialistsCost EngineerControlEngineerConsultantsMechanicalEngineer(s)ProcessEngineer(s)ProjectManagerE&CCompanyTechnologyVendorOperatingCompany


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyCurrent Approach(For most companies, most sectors)ProjectSponsorContractorsCivilEngineersBusinessInputR&DSpecialistsTechnicalSpecialistsCost EngineerControlEngineerConsultantsMechanicalEngineer(s)ProcessEngineer(s)ProjectManagerE&CCompanyTechnologyVendorOperatingCompany


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyImplications Most major projects involve several companies working together

OpCo might itself be a joint venture between several companies

The companies might all be based in different regions of the world

Teamwork, technology transfer and effective communications have high impact and value

Good project management is more important than ever


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy3. The Project PlanProject must be delivered:On-timeOn-budgetOpCo usually writes incentives into the E&C contract to ensure that this happens

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign Work ProcessDetermine Customer NeedsSet DesignSpecificationsR&D if NeededEvaluate Economics& Select Design Predict FitnessFor ServiceBuild PerformanceModelsGenerate DesignConceptsProcurement& ConstructionBegin OperationCustomerApprovalDetailed Design &Equipment Selection


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyThe Project PlanIs developed & implemented by the project manager

Sets deadlines for completion of activities & intermediate deliverables

Allows scheduling of subordinate or dependent tasks

Allows estimation of the required manpower resources at each stage of the project

Determines the procurement schedule & gives an estimate of when cash outlays are expected

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExample: 11-Week Plan for a Process Design Project


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats In a Project Plan?List of tasks


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats In a Project Plan?Durations, startand end dates


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats In a Project Plan?Predecessortasks


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats In a Project Plan?Resourceallocations


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats In a Project Plan?Ganttchart


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExample: 11-Week Plan for a Process Design Project


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyTools for Project PlanningSpecialized software for larger projectsMS ProjectSureTrakPrimavera Project PlannerEnterprise PMCobra

Small project plans & Gantt charts can be drawn in spreadsheets or using cheap software (

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy4. The Design BasisWe need to know:What are we designing?How much of it do we want?Where will it be built?What are the boundary conditions?Determine Customer NeedsSet DesignSpecificationsR&D if NeededEvaluate Economics& Select Design Predict FitnessFor ServiceBuild PerformanceModelsGenerate DesignConceptsProcurement& ConstructionBegin OperationCustomerApprovalDetailed Design &Equipment Selection


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProcess Design BasisDocumentation of design assumptions and boundary conditions is very important

For new process plants, most companies use some sort of design basis form or questionnaire to serve as a record of the design basis

This record is also essential in handing off information between the operating company, technology suppliers and contractors

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Project information and revision tabs

To allow retrieval of documentationTo ensure that revisions are properly documented and make sure that the engineers arent working from the wrong versionTo document review and approval of the design basis

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Contact information

Company nameProcess unit nameWho to contact & where to reach them

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Conventions followed

Units of measurementCustomer specific and may also depend on locationDesign engineers have to be able to work with both metric and English unitsEquipment labeling conventionSometimes other conventions and codes, e.g. design codes

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Product information for primary products

Product grades desiredSafety data sheet reference numberProduction rate, purity, shipment details

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Information for primary raw materials

Feedstock gradesSafety informationAvailability and pricingFeed impurities and their concentrations

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Site information

Ambient conditions needed for design of insulation, air coolers, etc.Special conditions such as wind loads, hurricane and earthquake conditions that are needed for mechanical and civil engineering design

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in the Design Basis?Sheet 2 of the Design Basis has utility informationFuel gasesFuel oilsSteam levelsCoolantsProcess waterElectricityProcess AirConditions, availability, price, etc.

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy5. Design Practices: Codes & StandardsMethods and rules for designing processes and equipment are given in design codes of practice

Codes are set by national or international industry panels (e.g., ISO, ASME, API, ISA) Codes are reviewed and reissued frequentlyCodes specify practices for design, construction, testing and operation of equipment and processes, that are expected to lead to a safe design, based on the experience of the code committeeDesign in accordance with code is usually required by the company or by law

Standard sizes for piping & equipment, compositions, etc. are given in standards

Tubing dimensions, valve sizes, exchanger layouts, screw threads, wire gauges, screens,

The two terms tend to be used interchangeablyAlways consult the current (latest) edition of the code. Always make sure that the codes and standards used comply with local legal requirements.Examples will be given throughout the course


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy5. Design Practices: Design Factors (Design Margins)Equipment is usually sized for greater than the design throughputAllows for uncertainty in the design method and dataLeaves some room for expanding outputEnsures the plant can run at design capacity

Companies usually have a policy on design marginsTypically size equipment for 110% of design basisBe careful to add design margin only once!


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copy6. Design DocumentationDesign information must be clearly documented to enable:

Fair comparison between competing design alternativesTransfer of information to E&C company for detailed designDevelopment of plant manualsDetermine Customer NeedsSet DesignSpecificationsR&D if NeededEvaluate Economics& Select Design Predict FitnessFor ServiceBuild PerformanceModelsGenerate DesignConceptsProcurement& ConstructionBegin OperationCustomerApprovalDetailed Design &Equipment Selection


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design documentation for a process usually includes a minimum of:

The design basisA written description of the processA process flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E information (e.g., HAZAN, HAZOP, MSDS forms)

Additional information such as techno-economic analysis, market information, analysis of competing technologies or alternative design options may also be included if within the scope of the project


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationThe PFD or flowsheet identifies all the equipment items and process streamsUsually broken into several separate sheets, defining plant sectionsBy convention, feeds enter at left, products exit rightUsually also indicates stream temperature & pressure


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationMass & energy balances are usually given for each design case (e.g., SOR/EOR, different feeds, winter /summer, etc.)Usually mass flow, mole flow, wt% and mole% are given for every component in every streamOften summarized as a table at the bottom of the PFD

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E information

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationDefines equipment namesIndicates which equipment is sparedOften used to summarize equipment costs and serve as a starting point for the capital cost estimate

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationGive detailed design information (stream properties, dimensions) for each major piece of equipmentOccasionally include mechanical drawings if the equipment is not standardSometimes substituted with vendor specification sheets for sourced items

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWhats in a Spec Sheet?Project info & rev tabEquipment service and summary informationStream data needed for designCalculated design information for the equipmentDimensions and construction detailsNotes


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationThe P&ID is more detailed than the PFD and almost always runs to several sheetsIt shows all the plant instruments, control systems, control logic and shutdown systemsIt also shows pipe sizes and metallurgy (but not pipe layout)The P&ID is critical for performing design safety reviews


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationVariable costs of productionRaw materialsUtilitiesConsumablesPackaging & shippingFixed costs of productionWagesTaxesMaintenanceOverheadsCapital costsWorking capitalInstalled capital costRoyalty costsAnnual capital charge


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDesign DocumentationThe design basisA written description of the processProcess flow diagramAt least one mass & energy balanceProduct specifications and propertiesA list of major plant equipmentEquipment specification sheetsA piping and instrumentation diagramA cost estimateHS&E informationInformation on materials safety is required for hazard analysis, detailed designMaterial Safety Data Sheets (MSDSs) must be provided to employees and customers by law in the U.S.A. (OSHA Hazard Communication Standard 29 CFR Part 1910.1200)Information also needs to be collected to begin applying for emissions permitsThe type of information needed and level of detail varies locally

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyConclusion: What Makes a Process Design in IndustryDesign work processDesign teamProject planDesign basisStandard design procedures & practicesDesign documentation


Typical Approval ProcessAFER&D DataMarket AssessmentPreliminary DesignAFDDetailed DesignCustomer Identification$$$$$$$Construction

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyEstimating Capital Costs


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyEstimating Capital CostsFor which of you, intending to build a tower, sitteth not down first, and counteth the cost whether he have sufficient to finish itLuke 14:28Estimation of project costs has been important since the earliest engineering projects


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyCapital Cost Guessing GameWhat would it cost (in MM$) to build.

A 350 kbd oil refinery~4000A 2000 kMTA ethylene cracker~1200A 90 kbd fluidized catalytic cracking plant~1000A typical fine chemicals plant~20A typical world scale petrochemical plant~100A 60x8 distillation column2 to 10A new pharmaceutical plant20 to 100A pilot plant1 to 20A 2000ft2 heat exchanger~0.1A stirred tank reactor0.1 to 0.5

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyEstimating Capital CostsComponents of capital costTypes of cost estimateEstimating the cost of a whole plantEstimating equipment costs Estimating installed costsUpdating cost estimatesComputer tools for cost estimating


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:Inside Battery Limits (ISBL) plant investmentThis is the cost of the plant inside the fenceIncludes equipment, bulk materials, installation costs, foundations, roads, etc.

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:ISBLOffsite (OSBL) InvestmentIncludes additions to site infrastructureBoilers, electric sub-stationsShipping facilities, docks, etc.Laboratories, officesOften approximated as 40% of ISBL cost as first approximation

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:ISBLISBL + OSBL = fixed capital or installed capital costOSBL

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:ISBLOSBLEngineering & Construction CostsSite construction costsHome office costs

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:ISBLOSBLE&CWorking CapitalTo buy feedstocksTo get in business

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyComponents of Capital CostWe want to estimate the entire amount of money that the investor has to put into the project to get it started. This has several components:ISBLOSBLE&CWCContingencyTo allow for the unexpected?

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyISBL CostsDirect Field CostsMajor equipmentFurnaces, heat exchangers, coolersVessels, reactors, columns, tanksPumps, drivers, compressors, fans, turbinesRefrigerators, driers, centrifugesBulk itemsElectrics, instrumentation, computer controlPiping, valvesStructures, insulation, paintLube oils, solvents, catalystsCivil worksRoads, foundationsPiling, buildingsInstallation labor & supervisionIndirect Field CostsConstruction costsConstruction equipmentTemporary constructionTemporary power and waterConstruction workshopsField expenses & servicesField canteenSpecialists costsOvertime, adverse weatherConstruction insuranceLabor benefits & burdens


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyHome Office CostsEngineeringProcurementConstruction servicesConstruction supervisionProject managementExpensesBondingContractors fee

These costs should be estimated individually as they do not scale that well with project size, but a rule of thumb is 10 30% of ISBL investment


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyWorking CapitalWorking capital is the money you need to get the plant runningBuy feedstocks, pay bills, etc., until product is sold & revenue beginsSimple rules estimate WC as a proportion of ISBL (e.g.: 15%)More sophisticated methods break out WC in terms of operating costs, e.g. in terms of:

Days of RM storageDays of product storageDays accounts receivable less accounts payableInventories held (e.g. warehouse parts)Cash on hand


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyContingencyContingency charges allow for variation from the predicted cost estimateVariation can be caused byScope changeChange in economic scenarioCurrency fluctuationsLabor disputes, weather problems, subcontractor problemsValidity of cost estimate and vendor quotesContingency should be at least 10% of ISBL, & can be up to 50% if the process technology is uncertain: more about this later


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptStart-upConstructionProcurementDetailedDesignAs the project proceeds, costs accumulate and the overall cost estimate becomes more certainLowHighCost


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptStart-upConstructionProcurementDetailedDesignAt the same time, the influence of design decisions on project costs decreasesLowHighCostDesign Influence


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptStart-upConstructionProcurementDetailedDesignThis creates an incentive to try to use cost information to guide the design at as early a stage as possible (even though the cost estimate is least accurate).LowHighCostDesign Influence


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignAn order of magnitude estimate (ballpark estimate, guesstimate, Class 5 estimate) requires minimal design informationUsually based on the costs of similar processesCost of producing the estimate is < 0.1% of project costsAccuracy %Order ofMagnitudeThe terminology is taken from the Association for the Advancement of Cost Estimating International, AACEI


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignA study (factorial, preliminary, Class 4) estimate requires a flowsheet and the approximate size and duty of the major plant equipmentThe estimate is based on applying installation factors to main plant item costs The cost of producing the estimate is usually 0.1 to 0.2% of project costsAccuracy %Order ofMagnitudeStudyEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignThe definitive (authorization, budgeting, Class 3) estimate can be put together once the PFD, P&ID and equipment list are completed, all vessels and instruments are sized and a plot plan and plant layout has been developedThe cost is typically 0.4 to 0.8% of project costAccuracy %Order ofMagnitudeStudyEstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignThe detailed estimate (quotation, tender, contractors estimate, Class 2 estimate) is prepared by the contractor and is often in shopping list form, usually with a firm commitment to the client. It incorporates price information from initial discussions with vendors and usually requires some mechanical design workFrom 1 to 3% of project cost goes into preparing this estimateAccuracy %Order ofMagnitudeStudyEstimateDetailed EstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignThe check estimate (tender, Class 1 estimate) is prepared by the contractor after negotiations with vendors and sub-contractors have been concludedThe cost of this estimate can be up to 5% of total project cost, particularly if most of the engineering design has been completedAccuracy %Order ofMagnitudeStudyEstimateCheckEstimateDetailed EstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignChE design courses usually only have enough detail to get this farAccuracy %Order ofMagnitudeStudyEstimateCheckEstimateDetailed EstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyOrder of Magnitude EstimatesThere are several ways in which we can estimate plant cost with minimal design information:By looking at the cost of a similar plantSome journals publish project costs (e.g.: Hydrocarbon Processing)Reports with recent cost data are available from SRI, Chem SystemsPerrys handbook and other references have some plant cost dataBy applying a scaling equation to the whole plant or sub-sections of the plantUsing step-count methods


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExponential EstimatingThe cost of most plant items varies with the equipment size in a non-linear manner:

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExponential EstimatingSince the plant cost is built up from the sum of the equipment costs:

It follows that we should be able to approximately scale the total plant cost using the same six-tenths rule

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExponents for Different ProcessesIn practice, the 0.6 factor does not apply to all equipment or all types of process:

Most petrochemical processes are better fitted with exponent 0.7

Processes with a lot of gas compression or mechanical work have exponents 0.8 to 0.9 (e.g. MeOH, paper pulping)

Small scale, highly-instrumented processes have lower exponents 0.4 to 0.5

Examples of process cost curves are given in Ch6, Table 6.2


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExampleA 40,000 bbl/d hydrotreater costs 56 MM$. How much would a 30,000 bbl/d hydrotreater cost at the same location?

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyEstimating Plant Cost for Manufactured ProductsFor large scale mass manufacture (>0.5 MM pieces/y) a rule of thumb is:

Total cost of production = 2 x materials cost

This allows a very approximate estimate of plant cost if other fixed costs and utilities can be estimated

More detailed methods allow for number of components, number of assembly steps and complexity of assembly


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignThese estimates usually start with an estimate of the cost for each major piece of plant equipmentAccuracy %Order ofMagnitudeStudyEstimateCheckEstimateDetailed EstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copySources of Equipment CostsDesign ConceptConstructionProcurementDetailedDesignAccuracy %Order ofMagnitudeStudyEstimateCheckEstimateDetailed EstimateDefinitiveEstimate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExponents for EquipmentEquipment costs can be scaled from similar equipment of different size using the same exponent rule:

Exponents vary with equipment type:(Holland, F.A., Watson, F.A. & Wilkinson, J.K., 1984, in Perrys Handbook, 6th Edn., McGraw Hill, New York)

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyEquipment Cost CorrelationsThe ChE literature has an abundance of cost correlationse.g. Perrys Handbook, Ch.9

Many of these are updates or derivatives of the work of Guthrie, and have to be used with some cautionGuthrie, K.M. Capital Cost Estimating, Chem. Eng., 76(6), 114, 1969Guthrie, K.M. Process Plant Estimating, Evaluation and Control, Craftsman Book Co., Solana Beach, CA, 1974

The IChemE and ACostE publish an excellent (& very cheap) guide to capital cost estimating with recent cost correlations, but these need to be converted from U.K. to U.S. basis. Gerrard, A.M. Guide to Capital Cost Estimating, 4th Edn., Institute of Chemical Engineers, Rugby, U.K., 2000

Many cost engineers collect data and keep their own correlationsBest practice in industry is to use costing software (see later)Correlations given in Chapter 6 can be used as a first approximation if no software is available


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExample Cost Correlations: GraphsNote:Log scale2+ orders of magnitude validityError reading graph corresponds to error in correlationUninstalledGerrard, A.M. Guide to Capital Cost Estimating, 4th Edn., Institute of Chemical Engineers, Rugby, U.K., 2000

Example Cost Correlations: EquationsCe = USGC purchased equipment cost in January 2006 (CE = 478.6)Ce = a + b Sn

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyDetailed Design & Vendor QuotesFor specialized equipment (e.g. fancy reactors) or proprietary equipment, cost correlations are not widely available

To estimate the cost of such equipment we need to estimate the materials, labor and fabricators margin

Materials and labor require a detailed mechanical design, as well as a good understanding of fabrication methods and costs

Even a vendor will be unable to provide this information accurately until the design is specified in detail, hence this is usually left until later project stages


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyFactorial EstimatesIn addition to the purchased cost of the equipment itself, we need to consider the costs of:Installing the equipmentPiping, ducting, etc.Instrumentation and controlElectrical systemsCivil engineering work such as foundations & pilingStructures and buildingsInsulation, paint and fireproofingFor preliminary and study estimates these are estimated by multiplying the main plant item cost by an installation factor (or Lang factor)Cinstalled = Cequipment x F


Lang and Hand MethodsFCI = Delivered Bare Equipment Cost * Factor * Contingency

Fixed Capital Investment (FCI)

Bare Equipment Costs2002 Cost Data

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyInstallation FactorsLang originally proposed three installation factors, depending on plant type, roughly 4-5.Simple methods allow for variation of F by equipment type (e.g., the factors proposed by Hand):

More complex methods build up F from component factorsLang, H.J. Simplified approach to preliminary cost estimates. Chem. Eng., 55(6), 112, 1948Hand, W.E. From flow sheet to cost estimate. Petrol. Refiner, 37(9), 331, 1958

Chilton Method

Problem Statement

A small fluid processing unit is to be constructed adjacent to a larger operating unit in a multi-purpose chemical plant. The present costs of the equipment delivered to the plant site are listed below:

EquipmentDelivered Cost $

12 ft diameter tower$ 200,000Trays and internals for tower 350,000Accumulator drum 150,000Receivers 400,000Heat exchangers 600,000Pumps and motors 165,000Miscellaneous equipment 135,000Estimate the fixed capital cost using the Lang, Hand, and Chilton methods. Assume 15 % contingency.Capital Cost Example

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyInstallation FactorF = (1 + fp)fm + fer + fi + fel + fc + fs + flWhere:fpis the piping installation factorfmis the material cost factorferis the site erection installation factorfiis the instrumentation installation factorfelis the electrical installation factorfcis the civil installation factorfsis the structure & buildings installation factorflis the lagging, paint and fireproof installation factorAll of these factors (except fm) vary with installation complexity and equipment costNote that the factors are standardized on a plain carbon steel basis


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyMaterials Cost Factors, fmExpress costs relative to plain carbon steelCarbon steel1.0Aluminum & bronze1.07Cast steel1.1304 stainless steel1.3316 stainless steel1.3321 stainless steel1.5Hastelloy C1.55Monel1.65Nickel & inconel1.7


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyInstallation FactorGerrard & Perrys Handbook give detailed methods for estimating component installation factorsTypical behavior of installation factors is:

Overall installation factor is almost always 2 < F < 6Estimation of F is easy to code in spreadsheets & is effectively built into commercial estimating softwareCequipmentFIncreasing complexity of installation


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyCost Estimate BasisMost cost data is published on a standard basis of USGC or NWEHistorically the major locations of the chemical industryStandard basis allows quick comparison with other data, studiesCost information should also always state the cost year basis, e.g. $2004, 2000, 2002, etc.For a new project we therefore have to update the cost basis to reflect the correct location, local currency and current (or projected) time frameThis is done by applying indices:

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyU.S.A. Cost IndicesEngineering News Record (ENR) Construction IndexMainly for civil engineering workNot really suitable for process industries, but has been going since 1904Chemical Engineering (CE) Plant Cost IndexPublished monthly in Chemical Engineering magazineMulti-component index, but Chem. Eng. also has equipment indicesMarshall & Swift (M&S) Equipment Cost IndexAlso published monthly in Chemical EngineeringComposite from several industries (including cement, chemicals, glass, )Nelson-Farrer Refinery Construction IndexPublished monthly in Oil & Gas JournalApplies to refinery & petrochemical plants on USGCOGJ also publishes quarterly indices for 40 equipment types


CE Cost Index

Marshall & Swift Cost Index

Global EconomyCapital Investment Location Factors

US Gulf Coast 1.00US west Coast 1.25Western Europe 1.20Mexico0.95Japan1.15Pacific Rim1.00India0.85

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyProject CycleDesign ConceptConstructionProcurementDetailedDesignAccuracy %Order ofMagnitudeStudyEstimateCheckEstimateDetailed EstimateDefinitiveEstimateOnce we have some equipment sizes, we can start using costing softwareMost industrial designs are costed using commercial costing softwareExperienced cost estimators often customize the software using their own data or models


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyAspen ICARUS Process Evaluator (IPE)Allows import of simulation data from Aspen Plus, HYSYS, UniSim, Pro II, ChemCADMakes expert system assumptions for bulks, installation, indirect costs & home office costsProvides a relatively quick, defensible cost estimate with common basis of assumptionsEasy to update as design detail is added

2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyExample of Using Aspen IPEFind the cost of a waste heat boiler that produces 4,000lb/h of steam. The boiler area has been estimated as 1300 ft2


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyUsing Aspen IPERight-click on main area then select Add Project ComponentRight-click on main area then select Add Project Component


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyUsing Aspen IPESelect process equipment,Then heat exchangers


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyUsing Aspen IPEEnter a name and select waste heat boiler


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyUsing Aspen IPEEnter size parameters and click evaluate


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyUsing Aspen IPEEquipment costInstalled cost


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyTips for Capital Cost EstimatingCheck location, materials of construction, currency and time basis of data carefully and ensure that all data are put on a consistent basis

Confirm source references and beware of updates of ancient data

Keep a record of any new cost data you come across

Be discerning in use of commercial software tools and be sure that you agree with the implicit assumptions

Be careful not to use vendor data until the design is specified in detail, otherwise there is a high likelihood of unanticipated costs


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyPoint and Range EstimatesAll point estimates of capital cost are wrong

Estimate should always include quantification of the margin of error

Laws of statistics can be used to quantify range of variation more accuratelyParticularly useful when the uncertainty in the cost of some equipment is much greater than the balance of the plantCare is needed in ensuring that the uncertainty in any item does not affect the size of other items

A good overview of statistical methods in cost estimating is given in:

Sweeting, J. Project Cost Estimating Principles and Practice., Institution of Chemical Engineers, Rugby, U.K., 1997.


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyPrecision & ContingencyContingency is strictly a cost added by the contractor to allow for uncertainty in the estimateContingency should be set to give a desired probability (statistical confidence) that the project will come in under the quoted costHigher uncertainty requires more contingency, hence Me third! for new technologySee Ch6 for more details


2007 G.P. Towler / UOP. For educational use in conjunction with Sinnott & Towler Chemical Engineering Design only. Do not copyCost Engineering ResourcesReferences cited above

Association for the Advancement of Cost Engineering (AACE) International www.aacei.org

Project Management Institute www.pmi.org

U.K. Association of Cost Engineers (ACostE) www.acoste.org.uk

International Cost Engineering Council (ICEC) www.icoste.org (has listings to Cost Engineering societies in 46 countries)


Manufacturing Costs

Operating Cost Components1989 Cost Basis

Labor Rates1999 Cost Basis

Design Project ExampleA mixed natural gas liquids (NGL) stream is being debutanized in a distillation tower. The feed currently enters the tower subcooled at 100 F. To save energy, your supervisor has suggested installing a heat integration system which will cross-exchange the hot column bottoms stream with the feed. Her approach will also require a booster pump be added to the feed line. Existing system data:Feed rate: 40,000 std BBL / day Feed composition: 25 wt % iC4, 25 wt% n C5, 50 wt % n-hexaneFeed temperature = 100 FCurrent feed pressure = 80 psigBottoms stream conditions - bubble point at 85 psig. Revised process information:

The column bottoms flow rate should be based on 95 % recovery and ~ 100% purity of iC4 in column overhead.Pump discharge pressure = 150 psig

Base Case QQ

Process Revision qQq

Aspen Simulation (Base Case)

Aspen Simulation (Revision)

Corporate Cash Flow

Project Cash FlowCorporationWorking CapitalOperationsRevenue / SalesExpensesTaxesDepreciationNet IncomeCashFlow

Project Cash Position Chart

DepreciationIRS Definition

A reasonable allowance for exhaustion, wear and tear, and normal obsolescence of a property used in the trade of business. Such property must have a determinable useful life more than one year.

Depreciation MethodsStraight Line

Declining Balance

Modified Accelerated Cost Recovery System (MACRS)

FCIWorking CapitalOperationsRevenueExpensesOperating Income ( $ 600,000)Depreciation ( $100,000)Net Income ($ 250,000)Taxes ($ 250,000)Cash Flow ($ 350,000)LandA chemical plant can be installed for $ 1,000,000.Operating income is estimated to be $ 600,000 annually this is revenue minus annual expenses. Assume 10 yr straight line depreciation and a 50 percent tax rate. Land can be purchased for $ 100,000. Plant construction will take two years and at start-up $ 100,000 of working capital will be required. The plant salvage value is $ 50,000 and will be realized as income during the 10th year of operation do not include the salvage value in the depreciation calculation. Determine the cash flow for each year.($ 500,000)

PeriodInvestment SummaryCashFlowCash PositionStart of year -2-100,000-100,000Duringyear -2-500,000-600,000Start of year -10During year -1-500,000-1,100,000Time zero-100,000-1,200,000Year 1350,000-850,000Year 2350,000-500,000Year 3350,000-150,000Year 4350,000200,000Year 5350,000550,000Year 6350,000900,000Year 7350,0001,250,000Year 8350,0001,600,000Year 9 350,0001,950,000Year 10350,0002,300,000End Year 10225,0002,525,000

Time Value of MoneyFuture Sum

Annuity Payments

Present Worth

Discrete Interest

Continuous Interest

Future WorthManhattan Island was purchased in 1626 for $ 24.00 (P). Taxable real estate value in 1984 = $ 24 billion

Who got the best deal assuming a 6 % discrete yearly interest rate PF

Annuity (Loan)Calculate your monthly payments (R) for a new $ 62,000 Corvette assuming a interest rate of 6 percent and a loan period of 60 monthsP R R R R

Annuity (Uniform Payments)My daughter wants to go to Stanford !!! How much do I deposit in her college fund each year to pay her first years tuition of $ 25,000 in 5 years ?? The bank will pay me 4 % interest. R R R R R F

Capitalized CostAn engineer buys equipment for $ 12,000 she wants a fund set up so she can have $ 10,000 every 10 years to replace the equipment (the salvage value for the unit is $ 2,000) How much money should be put in the annuity and what is the capitalized cost ?? The annual interest rate is 6 percent10 yearsPReplacement Value($ 10,000) Capitalized Cost = Initial Investment + Annuity

Gregory Tables

Textbook Discount Factors

Discounted Cash Flow

PeriodInvestment SummaryCashFlowCash PositionDiscountFactor (15 % ) Discounted Cash FlowDiscounted Cash PositionStart of year -2-100,000-100,0001.350-135,000-135,000Duringyear -2 to 0 -500,000-600,0001.166-583,000-718,000Start of year -10During year -1 to 0 -500,000-1,100,0001.079-539,500-1,257,500Time zero-100,000-1,200,0001.0-100,000-1,357,500Year 1350,000-850,0000.929325,150-1,032,350Year 2350,000-500,0000.799279,650-752,700Year 3350,000-150,0000.688240,800-511,900Year 4350,000200,0000.592207,200-304,700Year 5350,000550,0000.510178,500-126,200Year 6350,000900,0000.439153,65027,450Year 7350,0001,250,0000.378132,300159,750Year 8350,0001,600,0000.325113,750273,500Year 9 350,0001,950,0000.28098,000371,500Year 10350,0002,300,0000.24184,350455,850End Year 10225,0002,525,0000.22350,175506,025

Profitability AnalysisPayout Period (POP) = FCI (depreciable) Cash flow / yr

Return on Original Investment (ROOI) = Average annual NPAT TCI

Return on Avg. Investment (ROAI) = Average Annual NPAT Land + WC + SUExp + License + FCI /2

Net Present Value (NPV)

Internal Rate of Return (Discounted Cash Flow) - IRR

Net Present ValueSum of discounted cash flows For previous example:

NPV = $ 506,025 @ 15 %

PeriodInvestment SummaryDiscountFactor (15 % ) Discounted Cash FlowStart of year -2-100,0001.350-135,000Duringyear -2 to 0 -500,0001.166-583,000Start of year -10During year -1 to 0 -500,0001.079-539,500Time zero-100,0001.0-100,000Year 10.929325,150Year 20.799279,650Year 30.688240,800Year 40.592207,200Year 50.510178,500Year 60.439153,650Year 70.378132,300Year 80.325113,750Year 9 0.28098,000Year 100.24184,350End Year 100.22350,175

Internal Rate of ReturnInterest rate which yields NPV at end of project life = zero

Design Project ExampleEconomic criteria:

Find NPV at 10 % Find IRR

Costs: Electricity = 10 cents / kwhSteam (450 psi) = $ 10.00 / mm BTU

10 year project life6 year class life straight line depreciationWorking capital and start-up expenses 10 % of TCINo land costOne year construction period (2011start of construction)Escalate costs at 3 % per year. Use Aspen generated cost information

Sensitivity AnalysisTornado Plot

Sensitivity AnalysisSpider PlotIRR% Change-10-5+5+10-5-10+5+10Sales PriceSale VolumeInvestment

Uncertainty AnalysisVariable 1Variable 3Variable 2Total Project

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Economics Towler

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