CHAPTER 8 PROFITABILITY ANALYSIS 8.1 INTRODUCTION Chemical plants like glycerine plants are built to make a profit and an estimate of investment required and the cost of production are needed before the profitability of a project can be assessed. Cost estimation is a specialized subject and a profession in its own right, but the design engineer must be able to make rough cost estimates to decide between project alternatives and optimize the design (R. K. Sinnott, 2009). The costing of equipment which has been estimated of glycerine production will be evaluated by profitability analysis to make sure the project is economically attractive. 8.2 PURCHASED COST 8.2.1 Module Costing Technique The equipment module cost technique is a common technique to estimate cost of a new chemical plant. This technique relates all costs back to the purchased cost of equipment evaluated for some base conditions. Deviation from these base conditions are handled by using multiplying factors that depend on the following:
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CHAPTER 8
PROFITABILITY ANALYSIS
8.1 INTRODUCTION
Chemical plants like glycerine plants are built to make a profit and an estimate of
investment required and the cost of production are needed before the profitability of a
project can be assessed. Cost estimation is a specialized subject and a profession in its
own right, but the design engineer must be able to make rough cost estimates to decide
between project alternatives and optimize the design (R. K. Sinnott, 2009).
The costing of equipment which has been estimated of glycerine production will
be evaluated by profitability analysis to make sure the project is economically attractive.
8.2 PURCHASED COST
8.2.1 Module Costing Technique
The equipment module cost technique is a common technique to estimate cost of a new
chemical plant. This technique relates all costs back to the purchased cost of
equipment evaluated for some base conditions. Deviation from these base conditions
are handled by using multiplying factors that depend on the following:
1. The specific equipment type
2. The specific system pressure
3. The specific materials of construction
The bare module cost as in Equation 8.1 is the sum of the direct and indirect costs as
presented in Appendix C.1 (R. Turton, 2009).
(8.1)
Where:
CBM = bare module equipment cost: direct and indirect costs for each unit
FBM = bare module cost factor: multiplication factor to account for the items in
Table 7.6 plus the specific materials of construction and operating pressure
Cop = purchased cost for base conditions: equipment made of the most common
material usually carbon steel and operating at near ambient pressure
8.2.2 Bare Module Cost for Equipment at Base Conditions
The bare module equipment cost represents the sum of direct and indirect costs as
shown in Appendix C.1. The conditions specified for the base case are (R. Turton,
2009)
1. Unit fabricated from most common material, usually carbon steel (CS)
2. Unit operated at near-ambient pressure
For Equation 8.1 is used to obtain the bare module cost for the base conditions. For
these base conditions, a superscript zero (0) is added to the bare module cost factor
and the bare module equipment cost. So, the CoBM and Fo
BM refer to the base
conditions.
8.2.3 Bare Module Cost for Nonbase Case Condition
For equipment made from others materials of construction and/or operating at non
ambient pressure, the values for FM and FP are greater than 1.0. In the equipment
module technique, these additional costs are incorporated into the bare module cost
factor, FBM. The bare module factor is used for the base case, FoBM in Equation 8.1. The
information needed to determine this actual bare module factor is provided in Appendix
C.1. The effect of pressure on the cost of equipment is considered first.
Pressure factors for process vessel is
For tvessel>0.0063 m (8.2)
If Fp, vessel is less than 1 (corresponding to tvessel>0.0063 m), then Fp, vessel =1. For
pressure less than -0.5 barg, Fp, vessel =1.25. Equation 8.2 is used when the thickness of
the vessel wall is less than ¼ D which is for vessel range D = 0.3 to 4.0 m, occurs at
pressure 320 barg.
Pressure factors for other process equipment is
(8.3)
The pressure, P is obtained from operating pressure in equipment and the values
constant, C1, C2 and C3 for different equipment are refer to the Appendix C.2 (A.2).
8.2.4 Purchased Equipment Cost
Data for the purchased cost equipment, at ambient operating pressure and using
carbon steel construction normally, Cop is
(8.4)
Where A is capacity or size parameter of equipment. The data K1, K2 and K3 along with
the maximum and minimum values used in the Appendix C.2.
8.2.5 Cost Escalation
(8.5)
The data of purchased equipment cost from survey of equipment manufactures during
period 2001 with an average CEPCI of 397. The purchased cost for the equipment is
obtained from period 2011 with an average CEPCI of 585.
8.2.6 Estimation Cost of Purchased Equipment
1. Heat exchanger
Heat transfer area: Area of one tube x number of tubes
The purchase cost of heat exchanger Cop can be found in Appendix C.5 (figure A.5) by
choosing the fixed tube sheet (shell and tube heat exchanger). So, the value of is
210. The purchase cost of heat exchanger is
The pressure factor, Fp for heat exchanger,
For heat exchanger with fixed tube sheet and floating head, the identification number
with material of construction of carbon steel-shell/stainless steel-tube is 4. From
Appendix C.3 , FM=2.8. From Appendix C.5, B1=1.63 and B2=1.66.
)
This is the bare module cost for 2001 (CEPCI = 397). The cost for 2011 can thus be
calculated as follows using the CEPCI of 585.
Cost in 2011 = Cost in year 2011 x Cost index in 2011
Cost index in 2001
2. Falling-film Evaporator
The purchase cost of falling film evaporator, at ambient operating pressure and using
stainless steel construction, Cop is
From Appendix C.7; K1 = 3.9119, K2 = 0.8627, K3 = -0.0088 and area of evaporator, A =
62.02 m2
Pressure factor, Fp, for the remaining process equipment are given by
where P is a unit of pressure are bar gauge = 1 bar
From Appendix C.8; P<10 for falling film evaporators with value of pressure rating is
C1=C2=C3=0
The bare module factors for the falling film evaporator is
where; Cop = purchased cost of equipment
FBM = bare module cost
From Appendix C.5, identification number of falling film evaporator is 26 and from
Appendix C.8, the value FBM is 3.90
This is the bare module cost for 2001 (CEPCI = 397). The cost for 2011 can thus be
calculated as follows using the CEPCI of 585.
Cost in 2011 = Cost in year 2011 x Cost index in 2011
Cost index in 2001
3. Separator
The purchase cost of vessel volume Cop can be found in Appendix C.9 which gives
1900 USD/m3. So, the value of is 1900. The purchase cost of separator is
Pressure factor, Fp, for the process vessel are given by
The bare module factors for the separator is
where; Cop = purchased cost of equipment
FBM = bare module cost
From Appendix C.4, identification number of process vessel is 20 and from Appendix
C.3, the value FBM is 3.20. From Appendix C.6, B1=2.25 and B2=1.82.
This is the bare module cost for 2001 (CEPCI = 397). The cost for 2011 can thus be
calculated as follows using the CEPCI of 585.
Cost in 2011 = Cost in year 2011 x Cost index in 2011
Cost index in 2001
4. Distillation column
Data needed in the estimation of the cost are:
Tray towers:
(8.5)
Thus,
From Table 21.2 in kNovel (pg 720)
Therefore cost of tray tower is estimated below:
Packed Towers:
(8.6)
From pg 720
Therefore cost of packed tower is estimated below:
Thus, the estimation cost of distillation column is defined as below:
5. Splitting Tower
From the Appendix C.2 of Analysis, Synthesis, and Design of Chemical Process book,
the values of K can be obtained as followed:
K1 = 3.4974
K2 = 0.4485
K3 = 0.704
While the value of A referred as a reactor volume. Thus A = 9.55
Therefore,
From the purchased cost calculated, the price of purchasing reactor in 2001 is
. Therefore, the price of purchasing reactor in 2011 can be determined by
using the following formula:
The bare module factors for the splitting tower is
Where,
Bare module cost is depending on the type of material besides the operating
condition of splitting tower itself. Therefore, the calculation of bare module cost should
involve with those factor.
The value of B1 and B2 can be determined through Appendix C.6 in Analysis,
Synthesis, and Design of Chemical Process book. By referring to the same book, the
material factor, FM can be got through Appendix C.3. Material factor relies on the type of
equipment thus different type of equipment should have different value of material
factor. Pressure factor, Fp is taken as 1 since the operating pressure is more than – 0.5
barg.
B1 = 2.25
B2 = 1.82
FM = 3.1
Therefore,
Thus,
The bare module cost of splitting tower is 479,194 USD approximately MYR
1,514,244.16. By referring to the Perry’s Chemical Handbook, Table 25-57 of Typical
Factors of Converting Carbon Steel Cost to Equivalent-Alloy Costs, the factor for
converting carbon steel material to the stainless steel type 316 is 2.86. The bare
module cost obtained before need to be multiplied with 2.86 factors since the
calculation performed before is based on carbon steel material. Thus, the new value of
bare module cost is:
Table 8.1: Purchase Cost of Equipment
Equipment Unit CBM2001
(MYR)
CBM2011
(MYR)
Cost (MYR)
Reactor 1 - 4,330,738 4,330,738
Separator 2 225,696 332, 575 665, 150
Falling film
Evaporator
2 3,293,020 4, 852, 435 9,704, 870
Distillation column 1 - 1,721,126 1,721,126
Storage tank 2 - 97,400 194, 800
Heat exchanger 6 438,742 646,509 3,879,054
Pump P-102 51,842 76,392 79,392
P-103 14,956 22,039 22,039
Compressor 1 220,098 324,326 324,326
Total purchase cost of equipment (PCE) 20,723,695
8.3 CAPITAL COST ESTIMATION
Total capital cost, CTC of a project consist of the fixed capital cost, CFC and the working
capital cost, CWC, plus the cost of land and any other non-depreciable assets, CL. The
Equation 8.7 is given by
(8.7)
Where,
CTC = Total capital cost
CFC = Fixed capital cost
CWC = Working capital cost
CS = Start up cost
FP = Pressure factor to account for high pressure
FM = Material factor to account for material of construction
CP = Purchase cost for base condition
FBM = Bare module cost factor
CBM = Bare module equipment cost for base condition
8.3.1 Grass Roots and Total Module Costs
Total module cost refers to the cost of making small-to-moderate expansions or
alterations to an existing facility. The total module cost can be evaluated from (R.
Turton, 2009)
(8.8)
Grass roots refer to a completely new facility in which start the construction on
essentially undeveloped land, a grass field. The grass roots cab be evaluated from (R.
Turton, 2009)
(8.9)
Where n represents the total number of pieces of equipment.
Total Bare Modul Cost, TBM = MYR 20,097,704
Total Grass Roots Cost:
Contingency and Fee Costs MYR
Total bare module cost CTBM 20,723,695
Contingency, CC CC = 0.15CTBM 3,108,554.25
Fee, CF CF =0.03 CTBM 621,710.85
Total module cost CC+ CF+ CTBM=CBM 24,453,960
Auxiliary Facilities MYR
Site development, CSD CSD =0.05CTBM 1,036,184.75
Auxiliary building, CAB CAB = 0.04CTBM 828,947.80
Offsite facilities, COF COS =0.20C TBM 4,144,739
Total 6,009,871.55
Total Gross Roots Cost, GRC = Total Module Cost + Total Auxiliary Facilities
= MYR 30,463,832
8.3.2 Fixed Capital Cost
Fixed capital is the total cost of the plant ready for start-up. It is the cost paid to the
contractors. It includes the direct cost items that are incurred in the construction of a
plant, in addition to the cost of equipments are
1. Equipment erection, including foundations and minor structural work.