Minimizing Reciprocating Compressor Life Cycle Costs

Over the Life of a Project

By:George M. KopscickAriel Corporation

Mount Vernon, OhioU.S.A.

Gas Machinery ConferenceSalt Lake City, Utah, October 6th to 8th, 2003

Abstract:

The requirement to become increasingly competitive has led companies to a better understanding of total life cyclecosts of facilities and the equipment used in them. The result is different criteria for selecting equipment, whichcauses changes in the design of compressors and the way manufacturers support equipment with spare parts,service and technical information after the sale. Understanding the effects of these factors enables reductions intotal life cycle cost through savings in equipment and spares costs, elimination of the requirement to purchaseinsurance spare parts for the facility and reductions in the time of unscheduled outages through short sparesdelivery.

George M. Kopscick: Minimizing Reciprocating Costs Over the Life Cycle of a Project

Gas Machinery Conference, Salt Lake City, Utah, October 6-8, 2003 Page 2

1 Introduction

The requirement to become increasingly competitivehas led companies to a better understanding of totallife cycle costs of facilities and the equipment usedin them. The result is different criteria for selectingequipment, which causes changes in the design ofcompressors and the way manufacturers supportequipment with spare parts, service and technicalinformation after the sale. These changes have beenaccelerated as company structures move from largeorganizations with functionally separate departmentsto smaller organizations with more team-basedapproaches to business. Whereas the olderorganization focused on strong functional goals,newer organization structures support broaderproject goals based on a wider range of needs andtrade-off decisions between conflicting projectrequirements. For example, in the past a rotatingequipment group made equipment selectionsprimarily based on reliability, power and initialcapital cost. Maintenance and parts costs came outof a different budget. When custom features wereadded that made a unit as reliable as possible, capitalcosts increased and delivery was extended. Therewere intense purchase negotiations to obtain the bestprice. Many manufacturers responded by reducinginitial equipment cost but increasing spares pricingto remain profitable.

This example can be contrasted against equipmentdesign and selection process for leased oil and gasproduction compression in North and SouthAmerica. Approximately half of all new equipmentgoing into this market is now leased rather thanpurchased. A contract for a 1 MW class gas enginedriven compressor is for an agreed fixed price permonth and is typically based on a 97% mechanicalavailability. If the unit does not meet the availabilitythe price is reduced. If the unit continually orsignificantly falls below the required availability, itis removed. The leasing company must have areliable unit and a clear understanding of total lifecycle cost to be successful. Parts cost, their deliveryand the ability to respond quickly and effectively tooperational difficulties are as important as theoriginal capital cost. These companies have an in-depth understanding of equipment total life cyclecost and use it to specify equipment design andselect the manufacturer.

This paper looks at life cycle cost components for atypical three-unit pipeline station project and howthey can be minimized. Problems that can increasethe cost of the project are identified and discussed.

2 Components of life cycle cost

A wide variety of items determine the total life cyclecost of a reciprocating compressor. Monetaryexpenditures such as the initial capital and power costswill have a direct and usually easily quantifiable effecton the total life cycle cost. The time required for start-up, spare part delivery periods for unforeseenmaintenance events, the time required to obtainspecialized technical information and the deliveryperiod of the compressor package can have both directand indirect financial impacts.

Direct effects can include loss of revenue for a facilityoperating at full capacity, additional shipping andadditional personnel costs. Indirect costs areassociated with the delay in project revenues on theproject’s overall financial performance. Most projectsare now reviewed on a project cash flow basis.Investment decisions for stand-alone facilities arecommonly based on a calculation of the internal rateof return (IRR) on the cash investment. This analysistakes into account the amount and timing ofinvestment and revenues to determine the return onthe investment. The more quickly a project startsearning a revenue stream the higher the return. Delaysor interruptions in revenue lower the return. Theability to eliminate risks that can result in extendedinstallation and start-up times and the ability torespond quickly to a part requirement can have asignificant effect on the project’s financial return.Extended installation and start-up times are especiallydamaging to a project’s return on investment becausethey occur when the majority of capital has beenexpended and are at the start of the project where thefunds’ impact on the IRR is not discounted by time.Extending the installation and/or start-up times resultsin a compounded reduction in the IRR because it alsodelays the receipt of the revenue stream.

The following lists represent some of the items thatmust be considered in understanding the life cycle costof a reciprocating compressor installation:

Direct components

• Project feasibility study and initialengineering

• Procurement cost• Engineering cost• Station and compressor package capital cost• Installation• Power cost• Utility costs• Consumable parts longevity and cost• Maintenance parts usage and cost

George M. Kopscick: Minimizing Reciprocating Costs Over the Life Cycle of a Project

Gas Machinery Conference, Salt Lake City, Utah, October 6-8, 2003 Page 3

• Insurance spare parts purchase andinventory costs

• Operating manpower• Maintenance manpower• Unscheduled shutdowns (reliability)• Salvage value

Indirect components

• On-time delivery of technical informationrequired for facility engineering

• Compressor delivery period• On-time package delivery• Installation time requirements• Installation difficulties• Start-up time requirements• Start-up problems• Unscheduled shutdowns due to incorrect

equipment application• Ability to operate over expected operating

range• Availability of technical information to

support operations and maintenance• Operations and maintenance training• Extended downtime due to parts

availability

3 Life cycle component costs

The amount of life cycle cost attributable toindividual components varies greatly depending onthe project. The costs in Figure 1 are representativeof the total life cycle cost of a typical pipelinestation composed of three CAT 3616 / Ariel JGC-6reciprocating compressor packages over a 20 yearperiod. The actual cost will vary substantially withthe project requirements and the method ofaccounting for manpower and overhead charges.

The discounted values shown in Figure 1 representthe present values of each item through a simpleyearly calculation assuming 12% discount rate. Thiswould be equivalent to a 15% cost of capitalcommonly used by firms and a flat 3% per yearinflation factor. The intention is to provide acomparison of the relative effect on the project costwhen the cost of capital is taken into account. Thediscounted values of each category provide a clearerview of the effect of a percentage reduction in thecosts on the total life cycle costs. The discountedvalues illustrate that funds spent at the start of aproject have much more impact than those spentduring the later years. Most projects do not havemuch potential to appreciably improve positive cashflow either by increases in income or decreases in

expenditures during the operating period of theproject. This is because companies correctly assumethat they estimate reasonable but low costs and thatthey will operate the facility properly. One result ofthis is that there is little potential to improve theproject returns by doing anything after about yearfour. Additionally, the shorter the design andconstruction phase of the project, the faster revenueflows are obtained, resulting in an increase in projectIRR. The importance of staying within projectbudgets and schedule through start-up and obtainingthe planned income stream at the start of the projectcannot be over-emphasized. One project truism thatmay not be strictly logical but is definitely true is, thelonger it takes to build something, the more it costs,regardless if anything is being done.

Financial models used to calculate actual projectIRR’s need to include more precise timing of fundsand the effects of depreciation, inflation, taxes,salvage values and any project financing. Theconclusions on the importance of the cash flows at thestart of a project versus later operating costs do notchange if a more sophisticated model is employed.

Total 20 Year Project CostsPipeline Station with

(3) CAT 3616 / Ariel JGC-6Values in $US

CurrentValue

DiscountedValue

(@ 12%)Fuel Cost75% Load Factor$2.5 - $5 /MMSCFD

$30-60 MM $11-22 MM

Station andInstallation lessCompressorPackages

$4.5-6.0 MM $4.5-6.0 MM

CompressorPackages $6.0 MM $6.0 MM

Operation andMaintenance @$45/hp

$12.0 MM $4.5 MM

Procurement andEngineering $0.5 MM $0.5 MM

Insurance Parts $0.3 MM $0.3 MM

Figure 1

George M. Kopscick: Minimizing Reciprocating Costs Over the Life Cycle of a Project

Gas Machinery Conference, Salt Lake City, Utah, October 6-8, 2003 Page 4

Indirect project costs vary greatly in the valueassigned to them. They can be small if the facilitiescan make up the lost revenue quickly, or so largethey can cost more than the equipment in a fewdays. Their effects on project’s return vary withwhen they occur in a project and can be calculatedwith a financial model of the project. As statedabove, the most important events are those thatoccur during construction and the first few operatingyears of the project.

One way to better visualize the effect of delayedcash flow into a project is to calculate capitalexpenditures that provide an equivalent change inthe project return. The following is an example ofextending the design, construction and start-upperiod by an additional three months:

Assume a project revenue stream equal to whata third party would charge to own and operatethe facility on a straight fee basis. Typically,the monthly fee is approximately 2% of theproject capital expenditure. Assuming totalcapital of $12 MM, the fee would be about$240,000 excluding fuel and utilities. Thisamount represents a reasonable return oncapital for the third party operator but does notinclude the facilities revenue production forthe ultimate customer. Since a value to thecustomer cannot be easily and factuallyquantified, it is not included in this example.

A three-month start-up delay would effectivelymove three months of revenue to the end of theproject where its discounted value is about10% of what it would have been up front. Itwould also delay the positive effects of projectdepreciation, incur additional constructionfinancing and insurance costs and addadditional manpower costs because even if themanpower is not utilized, it is typically notdemobilized the entire time. If the delay wasdue to a start-up problem additional costsmount quickly, especially during a time whenthere is pressure to meet the schedule.

The equivalent capital cost based on the aboveassumptions is about $650,000 due to delayingthe revenue stream plus the additional start-upcost. In total, it is probably close to $800,000.This is 18% of the discounted operating andmaintenance expense for the entire project andtherefore not easily made up by future costreductions.

Contingencies are added to project cost estimates toaccount for occurrences like this because it is notpossible to make up for them during the project-

operating phase. The more the risk of project delayand cost escalation are eliminated by planning andequipment design, the higher the expected can beexpected.

4 Factors affecting project costs

Facility engineering, equipment selection, utilitycontracts and maintenance practices resulting inhighly reliable, cost effective installations are thenorm in the energy industry. The objective of thissection of the paper is to offer concepts that can leadto lower costs through design, elimination of risk andunexpected outages. Typical project problems thatoccur and how to eliminate them are highlighted.

4.1 Fuel Cost

Fuel represents about 50% of the present value cost ofa project. Most projects do a good job of evaluatingcompressor and driver selections to minimize thiscost. The exception is where only the design point ofthe equipment is used in the evaluation rather than alooking at all the operating points weighted by theexpected operating time at each. Compressorperformance prediction software makes generatingperformance at alternate load step and operatingconditions easily available for these analyses.

Multiple unit installations with numerous unloadersteps can make determining how to most efficientlyoperate the equipment at each operating pointconfusing. Compressor performance predictionsoftware can draw operating maps that can be used bystation personnel to determine how best to run theunits.

The importance of reducing energy consumption canresult in valve designs being offered with acompressor that improve compressor efficiency buthave a shorter life. Valves designs need to bedeveloped with the supplier that include the best non-metallic material for the intended use. Additionally,the valve plate impact velocity must be withinconservative limits for all operating points. This iscritical as off design operating points may dictate thatthe lift (and therefore plate impact velocity) be limitedto below what would be selected if just the designpoint was reviewed. Compressor efficiency at thedesign point will be lower but the valves will bereliable. The trade-off of valve efficiency againstoperating life should be discussed with the supplier.

4.2 Process design

Liquids and particulate in the gas stream cansubstantially affect wear part life and pose a risk of

George M. Kopscick: Minimizing Reciprocating Costs Over the Life Cycle of a Project

Gas Machinery Conference, Salt Lake City, Utah, October 6-8, 2003 Page 5

equipment outages and damage. They may exist inthe expected gas composition, from an off-designflow or due to something like lube oil, condensate orwater that has accumulated in the piping over time.Station piping that runs dips down to run under aroad or access area then back up to the compressorinlet forms a liquid trap that accumulate smallamounts of liquid that can carry over as a slug. Theaddition of liquid removal and filters upstream of thecompressor is relatively inexpensive if done at thestart of a project and has a history of proven valueeven when the process gas is specified to be both dryand clean.

A complete station pulsation design by a reputablecompany should be part of a facility design. Thestudy must be based on all the expected operatingconditions for the facility, including compressorunloading configuration and any speed variations.Multiple unloading steps and speed variation add tothe complexity of the study and introduce the risk oferror. The use of a bypass load to cover smalldifferences in flow or conditions that exist only for ashort time may use additional energy but cansimplify the design and eliminate risk of error.

The control philosophy for the station should bereviewed with the compressor vendor to insureproper start-up, operation and shutdown of the unit.Correct pressure, temperature and differentialpressure limits should be confirmed. An operatingmap showing any areas where the compressorcannot be operated should be obtained. Compressorblock-in and blow-down logic during both normaland emergency conditions should be reviewed withthe compressor supplier. If the above steps aretaken, the risk of damage and downtime can begreatly reduced.

4.3 Equipment design

Valve design is very important in determining thereliability and efficiency of the compressor. Thedesign trade-off between efficiency and life as wellas the need to know all the different operating pointshas been discussed above. The compressor andvalve suppliers should provide recommendations formaterials of construction. Non-metallic materialsare evolving quickly. Some of the newer materialsoffer improvement in life and reliability at lowercosts. The specification of materials such as PEEKfor all conditions can actually decrease valve life inlower temperature operating conditions.

Slower piston speeds provide longer wear materiallife (up to a point) for a given operating point andnon-metallic material. The relationship betweencompressor drive speed, stroke length and piston

speed must be understood. Two different compressorscan operate at different piston speeds at the same drivespeed. During the compressor selection there can betrade-off between the maximum flow that can beprovided at a given drive speed and piston speed. Theneed for the maximum flow should be balancedagainst the change in piston speed and probablecomponent life. These discussions tend to be vaguebecause in almost all cases both compressor selectionswill provide the desired life. The decision to selectone over the other can increase the design factors thatbecome part of the design.

Proper lubrication is required for reliable operationand long times between required maintenance. Thecylinder lubrication system must provide a correctlymetered amount of the right lubricant to each point ofthe compressor. The concept of “more oil is betterthan less oil” does not apply to cylinder lubrication.Adding too much oil normally results in valve damagebecause the oil causes the valve plate to stick to theseat. This introduces another dynamic and results inhigh valve plate impact velocities. A correctlydesigned distribution block lubrication system insuresthat the correct amount of oil is supplied to each point.It eliminates the problem of having to establish theproper lubrication rates by counting oil drops in apoint to point system. Eliminating the need tomanually adjust each point greatly reduces the risk ofover lubrication.

Skid design and correct mounting of piping are otherareas that can create start-up problems. The basicdesigns for each compressor frame size are similar.Because of this, few mistakes are encountered in thefield, but it occasionally happens if a new skid designis developed. The main elements to look for in thedesign are:

The skid design must include adequatesupport under the piping and other criticalcomponents, with proper tie-down to transmitshaking forces to the foundation.

The skid must be correctly grouted to thefoundation.

Compressor hold down bolts must be longenough to provide sufficient stretch toeliminate any relative movement when thecompressor forces are applied. Bolt lengthsextending only though the compressor footand I-beam flange are not sufficient toprevent loosening.

The feet of the crosshead guides must besupported in a fashion that not only providesvertical support but also prevents horizontal

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Gas Machinery Conference, Salt Lake City, Utah, October 6-8, 2003 Page 6

movement perpendicular to the piston rod.Support them off of the deck plate is notsufficient. A-frame type supportssupported directly by a full depth skidmember are recommended.

Piping should be supported and clamped inaccordance with good engineering practice.Supports should be attached directly to, ordirectly supported by a structural memberof the skid or foundation. Band typeclamps should be used.

Following these suggestions will eliminate manypotential problems. Most of these items can beeasily verified by reviewing the design or looking atthe installation.

4.4 Engineering, design and construction

The length of the design, construction and start-upstages of a facility has a large impact on theproject’s financial returns. There are a number ofways to shorten this portion of the project andeliminate risks that can result in delays.

The availability of equipment engineering dataincluding general arrangement drawings, forces andmoments, cylinder data required for the pulsationstudy and torsion information within a few weeks ofan equipment order may shorten the design time. Ata minimum, it will eliminate the risk of changes.

Constructing the facility using modular equipmentassemblies that are designed, fabricated and testedbefore being transported to site also save time andreduce start-up risk. The engineering for theseassemblies can occur in parallel with the actualstation design as long as the interface boundariesand interconnection points are clearly defined at thestart of the process.

Building a baseplate-mounted assembly away fromthe site is more cost effective than ‘stick built’facility. In the case of a compressor, everythingfrom the inlet separator to the discharge of thecompressor including all auxiliary systems andinstruments but excluding air to air heat exchangerscan be supplied as a packaged unit. The packagewill cost less than if it were ‘stick built’ at site. Thisis because all the same components must be suppliedin either case with the exception of the baseplate.The saving in baseplate cost is made up for inincreased site labor hours, typically at a higher ratethan incurred in a fabrication facility. Mostestimates are that the direct cost of a ‘stick built’compressor system is about 10% more than apackage. (Estimates range from no difference to

20% higher.) Building a compressor system at sitealso increases the construction period, therebyreducing the financial returns of the project. Theprevious imputed equivalent capital cost of a one-month project completion extension puts the cost ofthis at about $240,000.

Another benefit of integrating modular assemblies toconstruct the plant is that the module can be certifiedat the packagers before being shipped to site.Verification of construction, instrument connectionsand calibration, painting, cleanliness and in somecases mechanical operations eliminates many risksthat can delay plant completion.

4.5 Operation and Maintenance

Large compression facilities have good operating andmaintenance procedures and personnel. The majorityof savings that can be obtained are associated withgetting a facility back into operation if there is anequipment problem. Items that can help reducedowntime include:

• Availability of parts that are not stockedat site

• Availability of answers to technicalquestions

• Availability of trend data that can beused to predict problems

• Ability to instrument the compressorsystem to obtain additional data

Parts availability is an important equipment selectioncriterion used by most companies. The availability ofthe other items listed above should be investigated.

5.0 Conclusion

Project life cycle costs are a function of both the directand the indirect costs associated with changes ordelays in cash flow. Both have a real effect on thefinancial returns of a project. The effect ofengineering decisions on when expenditures andrevenue streams will occur must be considered tooptimize a projects financial return. Delays in plantstart-up have a dramatic impact on the project becausethey not only add cost but also delay the revenuestream. This paper provides many suggestions toeliminate commonly seen delays.