ENGINEERING ESTIMATES FOR GASIFICATION

PROJECTSPresented to:

2008 Gasification Technologies CouncilAuthors: L. Bonnell; J Hemmings; J. Leatherwood; J. Davis

SNC-Lavalin, Houston Business Unit

The information contained herein is gathered from public and non-confidential sources and is offered only within the context of this non-authoritative presentation. The valuespresented herein are nominal and typical values for discussion and presentation purposes only. The material is subject to frequent and substantial change over time and some sourcescannot be independently verified. This information is not suited for technical basis of design nor for financial, business or investment decisions. The format and content are that of theAuthors.

Large Scale Gasification Projects

Project Development Issuesj p

Accurate capital cost information is required early in design to make p q y ginvestment decisions on projects that require 32- 40 months to first production.

The accuracy of any cost estimate is a direct function of the amount ofThe accuracy of any cost estimate is a direct function of the amount of upfront engineering effort expended, i.e. work-hours, services cost and calendar time and the skills of the estimating team

How do we select the proper capital cost estimate to satisfy: How do we select the proper capital cost estimate to satisfy: ♦♦ lender requirements; lender requirements; ♦♦ leadlead--time to financial close (how much design work is done); time to financial close (how much design work is done); ( g );( g );♦♦ Owner desire to minimize costs prior to financial closeOwner desire to minimize costs prior to financial close

Conceptual -P li i

Feasibility -D t il d Process Project FEED – EPCM-

Pre-FEED ESTIMATE DEFINITION#

Preliminary Assessment

Detailed Assessment

ProcessDefinition

ProjectDefinition

FEED Validation

EPCM-Implementation

Class V (< 1% eng.)

Class IV (1-5% eng.)

Class III(5-25% eng.)

Class II(25-50% eng.)

Class I( >50% eng.)

Study( g )

Scoping /Conceptual Curve / OOM Budget DefinitiveControl

O •IFC documents•Full P&ID- IFD

Factored

+100%/-50% +50%/-30% +35%/-20% +25%/-10% +15%/-10% +10%/-10%

• Process Objective • Product Mix • Feedstock

•No P&IDPreliminary:

•Project Objectives •H&M Balance •PFD-IFE•Prelim P&ID•Sized Equip List•Licensor PDP

•Project Objectives

•Technology Options

•Business Plan

•Product Mix

F d t k O ti

•Business Model

•Project Objectives

•Economic Model

•IFC documents•Equipment & Bulk purchasedEngineering Hrs setLabor rates set

• Detailed Design

•Full P&ID- IFD•Equip. layout*•Site Prep*•Civil Design*•Structural*•Piping*S f t / Fi *- H&M Balance

- PFD- Equip. List - Site Layout- Utilities

•Equip. Layout-IFE•Electric One-line•Utilities•Emissions•Pipe rack •Buildings

•Feedstock Options

•Capacity Options

•Site Alternative

•Block Flow Diagram

•Preliminary Layout

•General Location Detailed Design •Approved for • Construction •Procurement•Construction•Mechanical Complete

•Safety / Fire*•Equip. Datasheets*•DCS Spec.*•HAZOP Review•Constructability •EPCM Schedule

- Emissions• Licensor selection

• Few/No quotes

Buildings•DCS I/O Count•HAZID/”What If” •Verbal quotes for major equip.

Preliminary Layout p•Project closeout•Punch List•Turnover

•FEL Rating•Firm quotes for major equip.

*Client approved fordesign

1 - 2 mo. 3 – 4 mo. 7 - 9 mo. 10 - 12 mo. 18 - 24 mo.

# Follows AACEI Cost Estimate Classification System

Estimate Basis – Raw Capital Costs

Equipment Equipment –– tagged / named tagged / named 30%30%

Bulk materialsBulk materials-- concrete, steel, pipe, etc.concrete, steel, pipe, etc. 25%25%

Field supervision & labor hours Field supervision & labor hours 20% 20%

Engineering & Project Management services 9%Engineering & Project Management services 9%

Temporary construction facilitiesTemporary construction facilities 6%6%

Transportation; rigging; warehousingTransportation; rigging; warehousing 4% 4%

Site preparation; buildings; securitySite preparation; buildings; security 4%4%p p ; g ; yp p ; g ; y

Insurance; fees; licenses; permits; tolls; dutyInsurance; fees; licenses; permits; tolls; duty 2%2%

plus: Owner’s cost; cost during construction; escalation; risk ; contingency

Lender Requirements for Initial Financing

Class I Capital Cost Estimate (nominally +10% / Class I Capital Cost Estimate (nominally +10% / --10%) 10%) FullyFully--defined Facility Design with Proven Technologydefined Facility Design with Proven TechnologyPermits Issued with no ChallengesPermits Issued with no ChallengesGHG Planning GHG Planning –– COCO22 PlanPlanExperienced Project TeamExperienced Project TeamD t il d E ti Pl & S h d l th h A tD t il d E ti Pl & S h d l th h A tDetailed Execution Plan & Schedule through AcceptanceDetailed Execution Plan & Schedule through AcceptanceFormal Risk Assessment (validates estimate accuracy)Formal Risk Assessment (validates estimate accuracy)Equity > 30%Equity > 30% 40% to preclude need for “wraps”40% to preclude need for “wraps”Equity > 30% Equity > 30% -- 40% to preclude need for “wraps”40% to preclude need for “wraps”Fixed Price at financial closeFixed Price at financial close

Timing of Financial Close

Owners want low cost & short schedule

FEED EPC

~25+% eng.

FEED EPC

Owner Desired Timing of Financial Close & Fixed price

Class II @ +15% / -10%

Timing of Financial Close – Different Objectives

Owners want low cost & short schedule

FEED EPC

~25+% eng.

FEED EPC

Owner Desired Timing of Financial Close & Fixed Price

Class II @ +15% / -10%

Lenders want 10% estimate & fixed price

~ 60% eng. Class I @ +10% / -10%

FEED EPC

60% eng. Class I @ 10% / 10%

Convert tofixed price

Resolving the IssueLow cost & short schedule vs 10% estimate & fixed priceLow cost & short schedule vs. 10% estimate & fixed price

Convert toCl IFirmer Price Class I

BridgeF di

Class II

FEED EPCExtend

Funding

1. Complete FEED to develop Class II target cost estimate; QRA to define risk

2. Bridge funding to develop Class I estimate – trend costs during extensiong g p g

3. Fix equip., services, bulks (>65% of TIC) with remainder continuing to trend

4. Convert remainder to a firmer but not fixed total cost

Challenges to Estimate Accuracy

•• ”Turmoil” in capital project costs schedules labor cost”Turmoil” in capital project costs schedules labor cost•• Turmoil in capital project costs, schedules, labor cost, Turmoil in capital project costs, schedules, labor cost, availability and lead times causes traditional estimating availability and lead times causes traditional estimating methods utilizing historical data to be more uncertain. methods utilizing historical data to be more uncertain.

•• Historical cost database soon outdated. Historical cost database soon outdated.

L di t bilit i i t & t i l l d ti tL di t bilit i i t & t i l l d ti t•• Less predictability in equipment & material lead time, cost Less predictability in equipment & material lead time, cost escalation, labor availability over extended time intervals.escalation, labor availability over extended time intervals.

•• Critical suppliers pricing power Critical suppliers pricing power –– gasifier, ASU, turbinesgasifier, ASU, turbines

Project Lessons Learned

1. Lack of understanding of project complexity 1. Lack of understanding of project complexity -- it is a “custom” design.it is a “custom” design.

2. “Turmoil” impacts the ability to accurately predict future costs and 2. “Turmoil” impacts the ability to accurately predict future costs and lead times making a fixed price project very risky. lead times making a fixed price project very risky.

3. Project cost based upon equipment costs without site related issues 3. Project cost based upon equipment costs without site related issues j p q pj p q pbeing considered.being considered.

4. Desire to ascribe greater accuracy to an estimate without supporting 4. Desire to ascribe greater accuracy to an estimate without supporting technical documentation.technical documentation.

5. Insufficient funding and time allocated to execute design work to 5. Insufficient funding and time allocated to execute design work to properly support a high accuracy estimate. properly support a high accuracy estimate.

6. Under6. Under--estimation of permitting challenges.estimation of permitting challenges.p g gp g g

7. 7. Need for frequent open and honest communication among Need for frequent open and honest communication among Owner Owner –– Contractor Contractor –– Lender to understand the true risks.Lender to understand the true risks.

THANK YOUTHANK YOU