Economics Towler

ChE 473K Plant Design
R. B. Eldridge
Course Outline
Industrial Design Process
Economic Analysis
Safety / Environmental / Ethics Issues
Nuts and Bolts Equipment Design
Process Simulation
Feasibility Level Design Problems
Course Objectives
Provide 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 Well

To 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

Why Are ChEs Paid So Well

To 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

All the other ChE

classes you took
The design course
addresses these
The Design Process

Problem statement
XYZ Co.
Plan
Financial
outcome
Implementation
Design Work Process

Determine
Customer Needs
Set Design
Specifications
Build Performance
Models
Generate Design
Concepts
R&D if Needed
Predict Fitness
For Service
Evaluate Economics
& Select Design
Customer
Approval
Detailed Design &

Equipment Selection
Procurement
& Construction
Begin Operation
Common to all design problems in all industries

Why do we care about

financial outcome?

Financial Outcome
If you had $10 million, how would you rather invest it?
1.
In a FDIC insured savings account at 2% p.a.
2.
In equities (average return 9% over 25 years)
3.
In a project using proven technology with 12% annual return

in an established market
4.
In a project with new technology with 90% probability of

technical success, and 20% annual return in an established
market
5.
In a project with unproven new technology in a new market

that is forecast to grow 200% per year but hasnt taken off yet
6.
In a high-stakes poker game in Las Vegas
Increased
Risk
Industrial Process
Design

1. Design Work Process

Determine
Customer Needs
Set Design
Specifications
Build Performance
Models
Generate Design
Concepts
Customer
Approval
R&D if Needed
Predict Fitness
For Service
Evaluate Economics
& Select Design
Detailed Design &

Equipment Selection
Procurement
& Construction
Common to all design problems in all industries

Begin Operation
How do companies implement

this design process?

2. The Design Team

Project
Sponsor
Business
Input
Project
Manager
Process
Engineer(s)
Technical
Specialists
R&D
Specialists

Control
Engineer
Mechanical
Engineer(s)
Cost Engineer
Civil
Engineers
Consultants
Contractors
The Team Approach
Specialization and Outsourcing
Operating Companies
Own plants
Produce chemicals
High sales revenue
Margins & return on assets
(ROA) vary by sector
Technology Vendors
Own patents
Sell catalysts, enzymes,

equipment, licenses
Sales volume low
Margins, ROA usually high
Engineering & Construction Companies
Experienced project managers
Highly competitive & cost effective
Medium sales volume, low margins

Company Performance by
Sector
Notes:
Data from www.CNN.money.com as of 7.2.07

Oil industry is usually not so profitable as during 2005-2007
Technology companies are usually smaller, and are often subsidiaries or
privately held. Financial data are often not publicly available.

In the 1980s most projects were done in house

Operating
Company
Project
Sponsor
Business
Input
Project
Manager
Process
Engineer(s)
Technical
Specialists
R&D
Specialists
Technology
Vendor
Control
Engineer
Mechanical
Engineer(s)
Cost Engineer
Civil
Engineers
Consultants
Contractors
E&C
Company
Current Approach
(For most companies, most sectors)
Project
Sponsor
Operating
Company
Business
Input
Project
Manager
Process
Engineer(s)
Technical
Specialists
R&D
Specialists
Technology
Vendor
Control
Engineer
Mechanical
Engineer(s)
Cost Engineer
Civil
Engineers
Consultants
Contractors
E&C
Company
Implications
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

3. The Project Plan

ID
Task Name
Project KO Meeting
Process Commercialization
2
3
Verify Operating Conditions
Process Design - Flowsheet
Verify Full Design Criteria
6
7
8
9
10
11
12
13
M-1
M1 M2
3/31
M3
M4
M5
M6
M7
M8
M9
M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 M21 M22 M23
74 days
Process Design/Optimization
Cold Flow Modeling
Design Sparger
Approve Sparger Design
Construction of Wedge
PP design/construction/shakedown
Cold Flow Testing
Catalyst Scale-up
14
Catalyst Scale-up
15
Demonstration Plant
16
Commercialization Team Formed
17
Demo Plant Design Basis
18
Process Engineering
19
PFD Review
20
Basic Engineering
21
P&ID review
22
Detailed Engineering
23
Layout Review
24
Procurement
25
Fabrication
26
Delivery & Installation
27
Begin Run
206 days
7/15

150 days
251 days
1/12
2/22
5/18
8/31
12/28
Project must be delivered:

On-time
On-budget
OpCo usually writes
incentives into the E&C
contract to ensure that
this happens
Design Work Process

Determine
Customer Needs
Set Design
Specifications
Build Performance
Models
These steps
have to
come first
Customer
Approval
Generate Design
Concepts
R&D if Needed
Predict Fitness
For Service
Evaluate Economics
& Select Design
Detailed Design &

Equipment Selection
Procurement
& Construction
This also needs time
This takes time

Begin Operation
The Project Plan
Is developed & implemented by

the project manager
Sets deadlines for completion of
activities & intermediate
deliverables
ID
Task Name
Project KO Mee ting

Proce ss Commercialization
2
3
Verify Operating Conditions
Process Design - Flowsheet
Verify Full Design Criteria
6
7
8
9
10
11
12
13
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

M-1
M1 M2
3/31
M3
M4
M5
M6
M7
M8
M9
M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 M21 M22 M23
74 days
Process Design/Optimization
Cold Flow Modeling
Design Sparger
Approve Sparger Design
Constru ction of Wedge
PP design/construction/shakedown
Cold Flow Testing
Catalyst Scale-up
14
Catalyst Scale-up
15
Demons tration Plant
16
Commercialization Team Formed
17
Demo Plant Design Basis
18
Process Engineering
19
PFD Review
20
Basic Engineering
21
P&ID re view
22
Detailed Eng ineering
23
Layout Review
24
Procurement
25
Fabrication
26
Delivery & Installation
27
Begin Run
206 days
7/15
150 days
251 days
1/12
2/22
5/18
8/31
12/28
Example: 11-Week Plan for a Process Design Project

Whats In a Project Plan?
List of tasks

Durations, start
and end dates

Predecessor
tasks

Resource
allocations

Gantt
chart

Example: 11-Week Plan for a Process Design Project

Tools for Project Planning
Specialized software for larger projects
MS Project
SureTrak
Primavera Project Planner
Enterprise PM
Cobra
Small project plans & Gantt charts can be drawn in spreadsheets

or using cheap software (<$100)
AceProject (free on-line)

TurboProject
Project Vision
Quick Gantt

4. The Design Basis

Determine
Customer Needs
Set Design
Specifications
Build Performance
Models
Generate Design
Concepts
Customer
Approval
Predict Fitness
For Service
R&D if Needed
Evaluate Economics
& Select Design
Detailed Design &
Equipment Selection
We need to know:
What are we designing?
Where will it be built?

Procurement
& Construction
Begin Operation
How much of it do we want?

What are the boundary conditions?
Process Design Basis

Documentation 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
Whats in the Design Basis?

Project Name
Project Number
REV
DATE
Sheet
BY
APVD
REV
DATE
1
BY
APVD
Project information and revision tabs
To allow retrieval of documentation

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


1 General Information
Owners Name
Process Unit Name
Plant Location
Correspondance Contacts
Address
Telephone / Fax
E-mail
Contact information
Company name
Process unit name
Who to contact & where to reach them

Conventions followed
Units of measurement
Customer specific and may also depend on location
Design engineers have to be able to work with both metric and English units
Equipment labeling convention

Sometimes other conventions and codes, e.g. design codes


Product Name
Product Grade
MSDS Form Number
Production Rate
Tons per year
Tons per day
Other units
Product Purity (wt%)

Product shipment mode
Additional Specifications
Product information for primary products
Product grades desired

Safety data sheet reference number
Production rate, purity, shipment details


Feedstock name
Feedstock grade
MSDS form number
Feedstock availability
Tons per year
Tons per day
Other units
Feedstock price ($/lb)

(Default: open market price)
Known feedstock impurities
Additional specifications
Information for primary raw materials
Feedstock grades
Safety information
Availability and pricing
Feed impurities and their concentrations

Name
ppmw

Low ambient temperature (F)
High ambient temperature (F)
Hight ambient relative humidity (%)
Site elevation (ft)
Maximum wind loading (mph)
Other site design requirements
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


Sheet 2 of the Design Basis has
utility information
Fuel gases
Fuel oils
Steam levels
Coolants
Process water
Electricity
Process Air
Conditions, availability, price, etc.

5. Design Practices: Codes & Standards
Methods and rules for designing processes and equipment are given in design
codes of practice
Standard sizes for piping & equipment, compositions, etc. are given in standards
Codes are set by national or international industry panels (e.g., ISO, ASME, API, ISA)
Codes are reviewed and reissued frequently
Codes 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 committee
Design in accordance with code is usually required by the company or by law
Tubing dimensions, valve sizes, exchanger layouts, screw threads, wire gauges, screens,
The two terms tend to be used interchangeably

Always 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

5. Design Practices: Design Factors
(Design Margins)
Equipment is usually sized for greater than the design
throughput
Allows for uncertainty in the design method and data
Leaves some room for expanding output
Ensures the plant can run at design capacity
Companies usually have a policy on design margins
Typically size equipment for 110% of design basis
Be careful to add design margin only once!

6. Design Documentation
Determine
Customer Needs
Set Design
Specifications
Generate Design
Concepts
Customer
Approval
Build Performance
Models
Predict Fitness
For Service
R&D if Needed
Evaluate Economics
& Select Design
Detailed Design &
Equipment Selection
Procurement
& Construction
Begin Operation
Design information must be clearly documented to enable:
Fair comparison between competing design alternatives

Transfer of information to E&C company for detailed design
Development of plant manuals

Design Documentation
The design documentation for a process usually includes a minimum of:
1. The design basis
2. A written description of the process
3. A process flow diagram
4. At least one mass & energy balance
5. Product specifications and properties
6. A list of major plant equipment
7. Equipment specification sheets
8. A piping and instrumentation diagram
9. A cost estimate
10.HS&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
1. The design basis
The PFD or flowsheet

identifies all the
equipment items and
process streams
3. Process flow diagram

9. A cost estimate
10.HS&E information
Usually broken into

several separate sheets,
defining plant sections
By convention, feeds
enter at left, products exit
right
XYZ Co.

Usually also indicates

stream temperature &
pressure
1. The design basis
9. A cost estimate
10.HS&E information
XYZ Co.

Mass & 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
stream
Often summarized as a
table at the bottom of the
PFD
1. The design basis
9. A cost estimate
10.HS&E information
XYZ Co.

1
25C
120 kPa
kg/h
Hydrogen
Methane
Ethane
Ethylene
Propane
Propylene
Butanes
n-butylene
i-butylene
Water
Carbon dioxide
Total
kmol/h
wt%
mol%
1.
2.
3.
4.
5.
The design basis

A written description of the process
Process flow diagram
At least one mass & energy balance
Product specifications and
properties
6. A list of major plant

equipment
8. A piping and instrumentation
diagram
9. A cost estimate
10. HS&E information

Defines equipment names
Indicates which equipment is

spared
Often used to summarize

equipment costs and serve as
a starting point for the capital
cost estimate
1.
2.
3.
4.
5.
The design basis

properties
7. Equipment specification
sheets
8. A piping and instrumentation
diagram
9. A cost estimate
10. HS&E information
Give detailed design information (stream properties, dimensions) for each major
piece of equipment
Occasionally include mechanical drawings if the equipment is not standard
Sometimes substituted with vendor specification sheets for sourced items

Whats in a Spec Sheet?

Project info & rev tab
Equipment service and
summary information
Stream data needed
for design
Calculated design
information for the
equipment
Dimensions and
construction details
Notes
The P&ID is more detailed

than the PFD and almost
always runs to several
sheets
It shows all the plant

instruments, control
systems, control logic and
shutdown systems
1.
2.
3.
4.
5.
6.
7.
The design basis

Product specifications and properties
A list of major plant equipment
Equipment specification sheets
9. A cost estimate
10.HS&E information
XYZ Co.

It also shows pipe sizes

and metallurgy (but not
pipe layout)
The P&ID is critical for

performing design safety
reviews
1.
2.
3.
4.
5.
6.
7.
8.
The design basis

Product specifications and properties
A piping and instrumentation diagram
9. A cost estimate
10.HS&E information
Variable costs of production

Raw materials
Utilities
Consumables
Packaging & shipping
Fixed costs of production

Wages
Taxes
Maintenance
Overheads
Capital costs
Working capital
Installed capital cost
Royalty costs
Annual capital charge

1.
2.
3.
4.
5.
6.
7.
8.
9.
The design basis

properties
A piping and instrumentation
diagram
A cost estimate
Information on materials safety is

required for hazard analysis,
detailed design
Material 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 permits
The type of information needed

and level of detail varies locally
10.HS&E information

Conclusion: What Makes a Process Design

in Industry
1.
2.
3.
4.
5.
Design work process

Design team
Project plan
Design basis
Standard design procedures &
practices
6. Design documentation

Typical Approval Process

R&D Data
Market
Assessment
Detailed Design
$$
AFE
AFD
$$$$$
Preliminary
Design
Customer
Identification
Construction
Estimating Capital Costs


Estimation of project costs has been important since the earliest
engineering projects
For which of you, intending to build a

tower, sitteth not down first, and
counteth the cost whether he have
sufficient to finish it
Luke 14:28

Capital Cost Guessing Game

What would it cost (in MM$) to build.
A 350 kbd oil refinery
~4000
A 2000 kMTA
ethylene cracker
~1200
A 90 kbd fluidized
catalytic cracking
plant
~1000
A typical fine
chemicals plant
~20
A typical world scale

petrochemical plant
~100
A 60x8 distillation
column
2 to 10
A new
pharmaceutical plant
20 to 100
A pilot plant
1 to 20
A 2000ft2 heat
exchanger
~0.1
A stirred tank reactor
0.1 to 0.5
Components of capital cost

Types of cost estimate
Estimating the cost of a whole plant
Estimating equipment costs
Estimating installed costs
Updating cost estimates
Computer tools for cost estimating



Components of Capital Cost

We 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 investment
This is the cost of the plant inside the fence
Includes equipment, bulk materials, installation costs, foundations, roads,

etc.


Offsite (OSBL) Investment
Includes additions to site
infrastructure
Boilers, electric sub-stations
Shipping facilities, docks,
etc.
ISBL
Laboratories, offices
Often approximated as 40%
of ISBL cost as first
approximation


ISBL
OSBL
ISBL + OSBL = fixed capital or installed capital cost


Engineering & Construction Costs
Site construction costs
Home office costs
ISBL
OSBL


Working Capital
To buy feedstocks
To get in business

ISBL
OSBL
E&C

WC
ISBL
OSBL
Contingency
To allow for the unexpected

E&C
ISBL Costs
Direct Field Costs
Major equipment
Furnaces, heat exchangers, coolers
Vessels, reactors, columns, tanks
Pumps, drivers, compressors, fans,
turbines
Refrigerators, driers, centrifuges
Bulk items
Electrics, instrumentation, computer
control
Piping, valves
Structures, insulation, paint
Lube oils, solvents, catalysts
Civil works
Roads, foundations
Piling, buildings
Installation labor & supervision

Indirect Field Costs

Construction costs
Construction equipment
Temporary construction
Temporary power and water
Construction workshops
Field expenses & services

Field canteen
Specialists costs
Overtime, adverse weather
Construction insurance
Labor benefits & burdens
Home Office Costs

Engineering
Procurement
Construction services
Construction supervision
Project management
Expenses
Bonding
Contractors 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

Working Capital
Working capital is the money you need to get the plant running
Buy feedstocks, pay bills, etc., until product is sold & revenue begins
Simple 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 storage
Days of product storage
Days accounts receivable less accounts payable
Inventories held (e.g. warehouse parts)
Cash on hand

Contingency
Contingency charges allow for variation
from the predicted cost estimate
Variation can be caused by
Scope change
Change in economic scenario
Currency fluctuations
Labor disputes, weather problems, subcontractor problems
Validity of cost estimate and vendor quotes
Contingency should be at least 10% of ISBL, & can be up to 50% if

the process technology is uncertain: more about this later



High
Project Cycle
Low
Cost
Design
Concept
Detailed
Design
Procurement
Construction
Start-up
As the project proceeds, costs accumulate and

the overall cost estimate becomes more certain
High
Project Cycle
Low
Cost
Design Influence
Design
Concept
Detailed
Design
Procurement
Construction
Start-up
At the same time, the influence of design

decisions on project costs decreases
High
Project Cycle
Low
Cost
Design Influence
Design
Concept
Detailed
Design
Procurement
Construction
Start-up
This 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).

Project Cycle
50
Accuracy %
40
Order of
Magnitude
30
20
An order of magnitude estimate (ballpark

estimate, guesstimate, Class 5 estimate)
requires minimal design information
Usually based on the costs of similar processes
Cost of producing the estimate is < 0.1% of
project costs
10
0
Design
Concept
Detailed
Design
Procurement
Construction
The terminology is taken from the Association for the

Advancement of Cost Estimating International, AACEI
Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
Study
Estimate
A study (factorial, preliminary, Class 4)

estimate requires a flowsheet and the
approximate size and duty of the major plant
equipment
The 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 costs
10
0
Design
Concept
Detailed
Design

Procurement
Construction
Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
Study
Estimate Definitive
Estimate
The 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 developed
The cost is typically 0.4 to 0.8% of project cost
10
0
Design
Concept
Detailed
Design

Procurement
Construction
Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
Study
Estimate Definitive
Estimate
Detailed
Estimate
10
0
Design
Concept
Detailed
Design
Procurement
Construction
The 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 work
From 1 to 3% of project cost goes into preparing this estimate

Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
Study
Estimate Definitive
Estimate
Detailed
Estimate
Check
Estimate
10
0
Design
Concept
Detailed
Design
Procurement
Construction
The check estimate (tender, Class 1 estimate) is prepared by the contractor after
negotiations with vendors and sub-contractors have been concluded
The cost of this estimate can be up to 5% of total project cost, particularly if most of the
engineering design has been completed

Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
Study
Estimate Definitive
Estimate
Detailed
Estimate
ChE design courses

usually only have enough
detail to get this far
Check
Estimate
10
0
Design
Concept

Detailed
Design
Procurement
Construction


Order of Magnitude Estimates

There are several ways in which we can estimate plant cost with
minimal design information:
1. By looking at the cost of a similar plant
Some journals publish project costs (e.g.:

Hydrocarbon Processing)
Reports with recent cost data are available from
SRI, Chem Systems
Perrys handbook and other references have some
plant cost data
2.
3.
By applying a scaling equation to the whole plant or sub-sections of

the plant
Using step-count methods

Exponential Estimating
The cost of most plant items varies with the equipment size in a
non-linear manner:
Log[Cost]
Cost
Size
By taking logs, we can usually get a reasonably good correlation

over a few orders of magnitude
Cost A
Cost B
Log[Size]
Size A

Size B
The exponent n is 0.6 for many types of equipment, hence this is

often known as the Six-tenths rule

Exponential Estimating
Since the plant cost is built up from the sum of the equipment costs:
C Plant
C
i 1
equip i
It follows that we should be able to approximately scale the total

plant cost using the same six-tenths rule
Cost A
Cost B

Size A

Size B
0.6
Exponents for Different

Processes
In 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

Example
A 40,000 bbl/d hydrotreater costs 56 MM$. How much would a

30,000 bbl/d hydrotreater cost at the same location?
Cost A
Cost B
size A

size B
30
Cost 56
40

0.6
0.6
47 MM$
Estimating Plant Cost for Manufactured

Products
For 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



Project Cycle
50
Accuracy %
40
30
20
Order of
Magnitude
These estimates usually start with an estimate of the cost for

each major piece of plant equipment
Study
Estimate Definitive
Estimate
Detailed
Estimate
Check
Estimate
10
0
Design
Concept

Detailed
Design
Procurement
Construction
Sources of Equipment Costs

50
Accuracy %
40
30
20
Order of
Magnitude
Cost curves, exponent based

Study
Estimate Definitive
Estimate
Detailed design
Vendor quotes
Detailed
Estimate
Check
Estimate
10
0
Design
Concept

Detailed
Design
Procurement
Construction
Exponents for Equipment
Equipment costs can be scaled from similar equipment of different

size using the same exponent rule:
Cost A
Cost B
Size A

Size
B
Exponents vary with equipment type:
(Holland, F.A., Watson, F.A. & Wilkinson, J.K., 1984, in Perrys Handbook, 6 th Edn., McGraw Hill, New York)
Equipment Cost Correlations
The ChE literature has an abundance of cost correlations

e.g. Perrys Handbook, Ch.9
Many of these are updates or derivatives of the work of Guthrie, and have to be used
with some caution
Guthrie, K.M. Capital Cost Estimating, Chem. Eng., 76(6), 114, 1969
Guthrie, K.M. Process Plant Estimating, Evaluation and Control, Craftsman
Co., Solana Beach, CA, 1974
Book
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 correlations
Best 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

Example Cost Correlations:

Graphs
Note:
Log scale
2+ orders of magnitude
validity
Error reading graph
corresponds to error in
correlation
Uninstalled
Gerrard, A.M. Guide to Capital Cost Estimating, 4th Edn., Institute of Chemical Engineers, Rugby, U.K., 2000
Example Cost Correlations: Equations

Ce = a + b Sn
Ce = USGC purchased equipment cost in January 2006 (CE = 478.6)
Detailed Design & Vendor

Quotes
For 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



Factorial Estimates
In addition to the purchased cost of the equipment itself, we need to
consider the costs of:
Installing the equipment

Piping, ducting, etc.
Instrumentation and control
Electrical systems
Civil engineering work such as foundations & piling
Structures and buildings
Insulation, paint and fireproofing
For 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 Methods

FCI = Delivered Bare Equipment Cost * Factor * Contingency
Fixed Capital Investment (FCI)
Bare Equipment Costs
2002 Cost Data
Installation Factors
Lang 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):
Equipment Type
Compressors
Distillation columns
Furnaces
Heat exchangers
Instruments
Miscellaneous equipment
Pressure vessels
Pumps
F
2.5
4
2
3.5
4
2.5
4
4
More complex methods build up F from component factors
Lang, H.J. Simplified approach to preliminary cost estimates. Chem. Eng., 55(6), 112, 1948
Hand, W.E. From flow sheet to cost estimate. Petrol. Refiner, 37(9), 331, 1958
Chilton Method
Capital Cost Example

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:
Equipment
Delivered Cost $
12 ft diameter tower
Trays and internals for tower
Accumulator drum
Receivers
Heat exchangers
Pumps and motors
Miscellaneous equipment
$ 200,000
350,000
150,000
400,000
600,000
165,000
135,000
Estimate the fixed capital cost using the Lang, Hand, and Chilton
methods. Assume 15 % contingency.
Installation Factor
F = (1 + fp)fm + fer + fi + fel + fc + fs + fl
Where:
fp
is the piping installation factor
fm is the material cost factor
fer is the site erection installation factor
fi
is the instrumentation installation factor
fel
is the electrical installation factor
fc
is the civil installation factor
fs
is the structure & buildings installation factor
fl
is the lagging, paint and fireproof installation
factor
All of these factors (except fm) vary with installation complexity and
equipment cost
Note that the factors are standardized on a plain carbon steel basis

Materials Cost Factors, fm

Express costs relative to plain carbon steel
Carbon steel
1.0
Aluminum & bronze
1.07
Cast steel
1.1
304 stainless steel
1.3
316 stainless steel
1.3
321 stainless steel
1.5
Hastelloy C
1.55
Monel
1.65
Nickel & inconel
1.7
Installation Factor
Gerrard & Perrys Handbook give detailed methods for estimating

component installation factors
Typical behavior of installation factors is:
Increasing complexity of installation
Cequipment
Overall installation factor is almost always 2 < F < 6

Estimation of F is easy to code in spreadsheets & is effectively built
into commercial estimating software



Cost Estimate Basis
Most cost data is published on a standard basis of USGC or NWE

Historically the major locations of the chemical industry
Standard basis allows quick comparison with other data, studies
Cost 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 frame
This is done by applying indices:
Cost Index 20XX Location Index B

Cost Index 2000 Location Index A
Cost $ 20XX Location B Cost $ 2000 Location A

U.S.A. Cost Indices
Engineering News Record (ENR) Construction Index

Mainly for civil engineering work
Not really suitable for process industries, but has been going since 1904
Chemical Engineering (CE) Plant Cost Index

Published monthly in Chemical Engineering magazine
Multi-component index, but Chem. Eng. also has equipment indices
Marshall & Swift (M&S) Equipment Cost Index

Also published monthly in Chemical Engineering
Composite from several industries (including cement, chemicals, glass, )
Nelson-Farrer Refinery Construction Index

Published monthly in Oil & Gas Journal
Applies to refinery & petrochemical plants on USGC
OGJ also publishes quarterly indices for 40 equipment types

CE Cost Index
CE Cost Index
Marshall & Swift Cost Index
Global Economy
Capital Investment Location Factors
US Gulf Coast
US west Coast
Western Europe
Mexico
Japan
Pacific Rim
India
1.00
1.25
1.20
0.95
1.15
1.00
0.85


Project Cycle
50
Accuracy %
40
30
20
Once we have some equipment

sizes, we can start using costing
software
Order of
Magnitude
Study
Estimate Definitive
Estimate
Detailed
Estimate
Check
Estimate
10
0
Design
Concept
Detailed
Design
Procurement
Construction
Most industrial designs are costed using commercial costing software

Experienced cost estimators often customize the software using their
own data or models

Aspen ICARUS Process Evaluator (IPE)

Allows import of simulation data
from Aspen Plus, HYSYS,
UniSim, Pro II, ChemCAD
Makes expert system
assumptions for bulks, installation,
indirect costs & home office costs
Provides a relatively quick,
defensible cost estimate with
common basis of assumptions
Easy to update as design detail is
added

Example of Using Aspen IPE

Find the cost of a waste heat boiler that
produces 4,000lb/h of steam.
The boiler area has been estimated as
1300 ft2

Using Aspen IPE
Right-click on main
area then select Add
Project Component

Using Aspen IPE
Select process equipment,

Then heat exchangers

Using Aspen IPE
Enter a name
and select waste
heat boiler

Using Aspen IPE
Enter size
parameters and
click evaluate

Using Aspen IPE
Equipment cost
Installed cost

Tips for Capital Cost Estimating
Check 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

Point and Range Estimates
All 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 accurately

Particularly useful when the uncertainty in the cost of some
equipment is much greater than the balance of the plant
Care 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.

Precision & Contingency

Contingency is strictly a cost added by the contractor to allow for
uncertainty in the estimate
Probability
Mean (most likely) value

Contractors estimate
Cost
Contingency should be set to give a desired probability (statistical

confidence) that the project will come in under the quoted cost
Higher uncertainty requires more contingency, hence Me third! for new

technology
See Ch6 for more details

Cost Engineering Resources
References 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 Components
1989 Cost Basis
Labor Rates
1999 Cost Basis
Design Project Example

A 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-hexane
Feed temperature = 100 F
Current feed pressure = 80 psig
Bottoms 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
Q
Process Revision
Q
Aspen Simulation (Base Case)
OVHD
PUMP
COLFEED
FEED
COLUMN
BOT
Aspen Simulation (Revision)

C OLD-IN
BOT
C ROSSEX
FEED
PUMP
HOT-OUT
C OLD-OU T
OVHD
COLUMN
Corporate Cash Flow
Project Cash Flow

Corporation
Cash
Flow
Working Capital
Revenue / Sales
Expenses
Operations
Depreciation
Net Income
Taxes
Project Cash Position Chart
Depreciation
IRS 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 Methods
Straight Line
Declining Balance
Modified Accelerated Cost Recovery
System (MACRS)
MACRS
A 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 10 th year of operation do not
include the salvage value in the depreciation calculation. Determine the cash flow for each year.
Period
Investment
Summary
Cash
Flow
Cash
Position
Start of
year -2
-100,000
-100,000
During
year -2
-500,000
-600,000
Start of
year -1
During
year -1
-500,000
-1,100,000
Time
zero
-100,000
-1,200,000
FCI
Land
Cash Flow ($ 350,000)
Working Capital
Year 1
350,000
-850,000
Year 2
350,000
-500,000
Year 3
350,000
-150,000
Year 4
350,000
200,000
Year 5
350,000
550,000
Year 6
350,000
900,000
Year 7
350,000
1,250,000
Year 8
350,000
1,600,000
Year 9
350,000
1,950,000
Year 10
350,000
2,300,000
End
Year 10
225,000
2,525,000
Revenue
Expenses
Operations
Operating Income ( $ 600,000)

Depreciation ( $100,000)
($ 500,000)
Net Income ($ 250,000)
Taxes ($ 250,000)
Time Value of Money
Future Sum
Discrete Interest
Continuous Interest
Annuity Payments
Present Worth
Future Worth
Manhattan 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
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 months
R R R R
P
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.
F
R R R R R
Capitalized Cost
An 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 percent
Replacement Value
($ 10,000)
P
10 years
Capitalized Cost = Initial Investment + Annuity
Gregory Tables
Textbook Discount Factors
Discounted Cash Flow

Period
Investment
Summary
Cash
Flow
Cash
Position
Discount
Factor (15 % )
Discounted
Cash Flow
Discounted
Cash Position
Start of year
-2
-100,000
-100,000
1.350
-135,000
-135,000
During
year -2 to 0
-500,000
-600,000
1.166
-583,000
-718,000
Start of year
-1
During year
-1 to 0
-500,000
-1,100,000
1.079
-539,500
-1,257,500
Time zero
-100,000
-1,200,000
1.0
-100,000
-1,357,500
Year 1
350,000
-850,000
0.929
325,150
-1,032,350
Year 2
350,000
-500,000
0.799
279,650
-752,700
Year 3
350,000
-150,000
0.688
240,800
-511,900
Year 4
350,000
200,000
0.592
207,200
-304,700
Year 5
350,000
550,000
0.510
178,500
-126,200
Year 6
350,000
900,000
0.439
153,650
27,450
Year 7
350,000
1,250,000
0.378
132,300
159,750
Year 8
350,000
1,600,000
0.325
113,750
273,500
Year 9
350,000
1,950,000
0.280
98,000
371,500
Year 10
350,000
2,300,000
0.241
84,350
455,850
End
Year 10
225,000
2,525,000
0.223
50,175
506,025
Profitability Analysis
Payout Period (POP)
FCI (depreciable)
Cash flow / yr
Return on Original Investment (ROOI) =

Return on Avg. Investment (ROAI) =
Average annual NPAT

TCI
Average Annual NPAT

Land + WC + SUExp + License + FCI /2
Net Present Value (NPV)

Internal Rate of Return (Discounted Cash Flow) - IRR
Net Present Value

Period
Sum of discounted cash flows

For previous example:
NPV = $ 506,025 @ 15 %
Investment
Summary
Discount
Factor (15 % )
Discounted Cash
Flow
Start of year
-2
-100,000
1.350
-135,000
During
year -2 to 0
-500,000
1.166
-583,000
Start of year
-1
During year -1
to 0
-500,000
1.079
-539,500
Time zero
-100,000
1.0
-100,000
Year 1
0.929
325,150
Year 2
0.799
279,650
Year 3
0.688
240,800
Year 4
0.592
207,200
Year 5
0.510
178,500
Year 6
0.439
153,650
Year 7
0.378
132,300
Year 8
0.325
113,750
Year 9
0.280
98,000
Year 10
0.241
84,350
End
Year 10
0.223
50,175
Internal Rate of Return

Interest rate which yields NPV at end of project
life = zero
Design Project Example

Economic criteria:
Find NPV at 10 %
Find IRR
Costs:
Electricity = 10 cents / kwh

Steam (450 psi) = $ 10.00 / mm BTU
10 year project life

6 year class life straight line depreciation
Working capital and start-up expenses 10 % of TCI
No land cost
One year construction period (2011start of construction)
Escalate costs at 3 % per year.
Use Aspen generated cost information
Sensitivity Analysis
Change in Net Present Value, M USD
-10
-5
10
Price
Variable
Ethylene
Total Erected Cost
High
Ethylene Utilization
Low
Natural Gas Cost

Fixed Costs
Utilities
Tornado Plot
Sensitivity Analysis
IRR
+10
Sales Price
+5
Sale Volume
% Change
-10
-5
-5
+5
+10
Investment
-10
Spider Plot
Uncertainty Analysis
Variable 1
Variable 2
Variable 3
0.2
0.4
0.25
0.35
0.15
0.2
0.3
0.1
0.25
0.15
0.2
0.05
0.1
0.15
0.1
0
0
0.05
0.05
10
0
-3
-2
-1
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
-3
-2
-1
Total Project
10
15
20

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ChE 473K Plant Design

2007 G.P. Towler / UOP. For educational use in conjunction with

Why Are ChEs Paid So Well

They can start from a vaguely defined problem statement such as a

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2007 G.P. Towler / UOP. For educational use in conjunction with

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The Team Approach

Specialization and Outsourcing

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Experienced project managers

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Medium sales volume, low margins

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Data from www.CNN.money.com as of 7.2.07

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In the 1980s most projects were done in house

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Delivery & Installation

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