3 Capital Cost Estimation

Chapter 3 Capital Cost Estimation

TOPIC TOPIC OUTCOMECapital Cost Estimating

1 Capital Cost Distinguish the classification of fixed capital cost estimates

2 Classification of Fixed Capital Cost Estimates

Estimate the purchase equipment costs based on the effect of time and capacity

3 Estimating Purchased Equipment Costs

Calculate the total capital cost of a plant

4 Estimating the Total Capital Cost of a Plant

What is economics?-The study of how limited resources is used to satisfy unlimited human wants

Engineering Economy- Is a collection of mathematical techniques that simplify economic comparison

Introduction

1. Problem recognition, formulation, and evaluation.

2. Development of the feasible alternatives.3. Development of the cash flows for each

alternative.4. Selection of a criterion ( or criteria).5. Analysis and comparison of the alternatives.6. Selection of the preferred alternative.7. Performance monitoring and post-evaluation results.

Engineering Economic Analysis Procedure

ExampleBad news: You have just wrecked your car!. You need another car immediately because you have decided that walking, riding a bike, and taking a bus are not acceptable. An automobile wholesaler offers you $2000 for your wrecked car. Also, your insurance company’s claims adjuster estimates that there is $2000 in damage for your car. Because you have collision insurance with a $1000 deductibility provision, the insurance company mails you a check for $1000. the odometer reading on your wrecked car is 58 milesAssumption:

A new car worth $10000 with odometer reading 28 miles

Price of selling a repaired car = $4500

Engineering Economic Analysis Procedure

Sources of EquipmentPrice FluctuationCompany PoliciesOperation Time and Rate of Production

Factors Affecting Investment and Production Costs

Used to describe the process by which the present and future cost consequences of engineering designs are forecast

Provide information used in setting a selling price for quoting, bidding, or evaluating contracts

Determine whether a proposed product can be made and distributed at a profit (EG: price = cost + profit)

Evaluate how much capital can be justified for process changes or other improvements

Establish benchmarks for productivity improvement programs

Cost Estimating

Capital cost – Cost associated with construction of a new plant or modifications to an existing chemical manufacturing plant

Classification of capital cost estimates:◦ Order of magnitude estimate◦ Study estimate ◦ Preliminary estimate◦ Definitive estimate◦ Detailed estimate

Estimation of Capital Costs

Order of Magnitude Estimate◦ relies on cost information for a complete process

taken from previously built plants◦ Requirement – blok flow diagram◦ Accuracy: +40% to -20%

Study Estimate◦ Utilizes a list of major equipment found in the

process (e.g. pumps, compressors and turbines, columns and vessels, fire heaters and exchangers)

◦ Each of equipment is roughly size and appropriate cost determined

◦ Based on process flow diagram (PFD)◦ Accuracy: +30% to -20%

Classification of Capital Cost Estimates

Preliminary Design Estimate◦ Requires more accurate sizing of equipment than

used in study estimate together with layout of equipment (piping, instrumentation, electrical requirements) and also utilities.

◦ Accuracy: +25% to -15% Definitive Estimate

◦ Requires preliminary specifications for all the equipment, utilities, instrumentation, electrical and off-sites

◦ Accuracy: +15% to -7%


Detailed Estimate◦ Requires complete engineering of the process and

all related off-sites utilities◦ Obtained vendor quotes for all expensive items◦ End of detailed estimate: the plant is ready to go

to construction stage◦ Accuracy: +6% to -4%


Cost and Accuracies of Different Capital Cost

Estimating Classification

Cost and Accuracies of Different Capital Cost Estimating Classification

Requirement – Process Flow Diagram (PFD)◦ Material and energy balance◦ Material of construction ◦ Size/capacity – roughly estimated

Alternatives of Estimation◦ Current price quoted from suitable vendor (most

accurate)◦ Use cost data on previously purchased equipment

(same type)◦ Utilized summary graphs available for various types

of common equipment (discussed in detailed)

Estimating Purchased Equipment Costs

For each major piece of equipment identified

The relationship between the purchased cost and an attribute of the equipment related to units of capacity is given by:

where;A = Equipment cost attributeC = Purchased costn = Cost exponentSubscripts – a:- equipment with the required attribute

b:- equipment with the base attribute

Effect of Capacity on Purchased Equipment Cost

--------- Equation 1.1

n

b

a

b

a

A

A

C

C

Equation 1.1 can be rearrange to give

where


--------- Equation 1.2 naa AKC

nb

b

A

CK

Equation 1.2 is a straight line with a slope of n when the

log of C is plotted versus the log of Aa

Values of cost exponent, n used in Equations 1.1 and 1.2 varies depending upon the class of equipment Replacing n in Equation 1.1 or/and 1.2 by 0.6 provides the relationship referred to as the six-tenth-rule

Example 1Use the six-tenth-rule to estimate the % increase in purchased cost when the capacity of a piece of equipment is doubled

Example 2Compare the error for the scale-up of a heat exchanger by a factor of 5 using the six-tenth-rule in place of the cost exponent given in Table 2.3


Equipment type Range of correlation

Units of Capacity

Cost Exponent n

Reciprocating compressor with motor drive

220 to 3000 Kw 0.70

Heat exchanger shell and tube carbon steel

5 to 50 m2 0.44

Vertical tank carbon steel 1 to 40 m3 0.52

Single-stage Blower 0.5 to 4 m3/s 0.64

Jacketed kettle glass lined 3 to 10 m3 0.65

Table 2.3: Typical Values of Cost Exponents for a Selection of Process Equipment

Example 3The purchased cost of a recently acquired heat exchanger with an area of 100 square meters was $10,000. Determine:a) the constant K in equation 1.1b) the cost of a new heat exchanger of 180m2


Indices most generally accepted in chemical industry

◦ The Marshall and Swift Equipment Cost Index◦ The Chemical Engineering Plant Cost Index

Determination of Purchased Cost

where;C= Purchase CostI = Cost Index

Subscripts – 1:- refers to the base time when cost is known

2:- refers to the time when cost is desired

Effect of Time on Purchased Equipment Cost

1

212 I

ICC --------- Equation 1.3

Example 4The purchased cost of a heat exchanger of 500m2 area in mid-1978 was $25,000

a) Estimate the cost of the same heat exchanger in mid-1996 using the two indices introduced above

b) Compare the results

Effect of Time on Purchased Equipment Cost

Year CE Plant Cost Index

1996 381.8

1997 386.5

1998 389.5

1999 390.6

2000 394.1

2001 394.3

2002 395.6

2003 401.7

2004 444.2

2005 468.2

2006 499.6

2007 525.4

2008 575.4

Jun 2009 597.1

Values for Selected Indexes between 1985 to Jun 2009

Total capital cost of a chemical plant includes:

◦ Direct Project Expenses Equipment f.o.b. cost, CP

Material required for installation, CM

Labor to install equipment and material, CL

◦ Indirect Project Expenses Freight, insurance and taxes, CFIT

Construction overhead, CO

Contractor engineering expenses, CE

Estimating the Total Capital Cost of a Plant

◦ Contingency and Fee Contingency, CCont

Contractor fee, CFee

◦ Auxiliary Facilities Site development,CSite

Auxiliary Buildings, CAux

Offsites and Utilities, Coff


– Cont.

Estimating capital cost for a process plant◦ Access to previous similar plant with different

capacity◦ Apply principles that already introduced:

The six-tenth rule – may be used to scale up/down to a new capacity

The Chemical Engineering Plant Cost Index – should be used to update the capital costs

Lang Factor Method – used when no cost information available


Lang Factor Method

where;CTM = the capital cost of the plant

Cp,i = the purchased cost for the major equipment units

n = the total number of individual unitsFLang = the Lang Factor


n

iipLangTM CFC

1, --------- Equation 1.4

Type of Chemical Plant Lang Factor,Flang

Fluid Processing Plant 4.74

Solid-Fluid Processing Plant 3.63

Solid Processing Plant 3.10

Capital Cost = (Lang Factor) x (Sum of Purchased Costs of all Major Equipment)

Table 2.3: Lang Factors for the Estimation of Capital Cost for Chemical Plants

Example 5The capital cost of a 30,000 metric ton/year iso-propanol plant in 1980 was estimated to be $5,000,000. Estimate the capital cost of a new plant with a production rate of 50,000 metric tons/year in mid-1996


Example 6Determine the capital cost for a major expansion to a fluid processing plant that has a total purchased equipment cost of $6,800,000



Bare Module Cost for Equipment at Base Conditions◦ Condition specified for base case are:-

Unit fabricated for most common material, usually carbon steel (CS)

Unit operated at near ambient pressure

◦ Bare Module Cost:-

BMPBM FCC


Bare Module Cost for Equipment at Base Conditions

◦ Bare Module Factor:-

where

MELOFITLBMF 11

PC= Bare module equipment cost: direct+ indirect cost

= Bare module equipment factor

= Purchased cost for base conditions

BMC

BMF

Example 7The purchased cost for a carbon steel heat exchanger operation at ambient pressure is $10,000. for a heat exchanger module, Ulrich [4] provides the following cost multiplying factors

Determine:a) Bare module cost factor, FBM

b) Bare module Cost, CBMc) Materials and labor costs to install the exchanger


MLFITOE

Cost Multiplier Value

0.710.370.080.700.15

Example 8Find the mid-1996 bare module cost of a floating head shell and tube heat exchanger with a heat transfer area of 100m2. The operating pressure of the equipment is 1.0bar with both shell and tube sides constructed of carbon steel. For this material and pressure the values of FP and FM are equal to 1.0


Figure A.1: Purchased equipment cost for shell and tube heat exchangers

Figure A.2: Pressure factors (Fp) for heat exchangers

Figure A.3: Bare module factors (FoBM) for heat exchangers

FM = Material factor to account for materials of construction

(for carbon steel, FM = 1)

FP = pressure factor to account for high pressure from Figure 2.5 (for ambient pressure, FP = 1)

Shell Material Tube Material Material Factor, FM

Carbon Steel (CS) Carbon Steel (CS) 1.00

Carbon Steel (CS) Copper (Cu) 1.25

Copper (Cu) Copper (Cu) 1.60

Carbon Steel (CS) Stainless Steel (SS) 1.70

Stainless Steel (SS) Stainless Steel (SS) 3.00

Carbon Steel (CS) Nickel Alloy (Ni) 2.80

Nickel Alloy (Ni) Nickel Alloy (Ni) 3.80

Carbon Steel (CS) Titanium (Ti) 7.20

Titanium (Ti) Titanium (Ti) 12.00

Table 2.9: Material Factors Floating Head Heat Exchangers


Bare Module Cost for Non-Base Conditions◦ Condition specified for Non-Base Case

Equipment made form other material of construction

Operating at non-ambient temperature FBM in the base case is replaced with actual bare

module cost factor, F0BM

◦ Bare Module Cost:-

oBMP

oBM FCC

Example 9Repeat example 8 except that the exchanger is made with stainless steel shell and tube


Example 10Find the bare module cost of a floating-head shell and tube heat exchanger with a heat transfer area of 100m2. The operating pressure of the equipment is 100 bar on both shell and tube sides and the construction of the shell and tubes is of stainless steel.


Example 11Find the bare module cost (in 1996) of a stainless steel tower 3m in diameter and 30m tall. The tower has 40 stainless steel sieve trays and operates at 20 bar.


Grass Roots and Total Module Costs

◦ Grass Roots new facility in which we start the construction on

essentially undeveloped land

◦ Total Module Costs Cost of making small-to-moderate expansions or

alterations to an existing facility


n

i

oiBM

n

i

oiTMTM CCC

1,

1, 18.1Total Module Cost,

n

i

oiBMTMGR CCC

1,35.0Grass Root Cost,

Example 12A small expansion to an existing chemical facility is being investigated and a preliminary PFD of the process is shown in Figure E2.14. The expansion involves the installation of a new distillation column with a reboiler, condenser, pumps and other associated equipment. A list of equipment, sizes, materials of construction, and operating pressure is given in Table E2.14A. Using the charts in Appendix A, calculate the total module cost for this expansion in 1996.


3 Capital Cost Estimation

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