Project Engineering &

Economics (PEE)

CL 327

Sangram Roy
Assistant Professor
Department of Chemical Engineering
 Course Timing and Policy of PEE
Monday – Room 217, 1100-1150
Tuesday – Room 213, 1330-1420
Wednesday – Room 217, 1200-1250
Assessment
First Quiz 10%
Mid-Sem 25%
Second Quiz 10%
End Sem 50%
Instructor Assessment 5%
References:
1. Plant Design and Economics for Chemical Engineers, Max S. Peters, K.D. Timmerhaus 4th Edition,
McGrawHill Inc.
2. Chemical Engineering Design Principles, Practice and Economics of Plant and Process Design, Gavin
Towler and Ray Sinnott, 2nd Edition, Elsevier
Why PEE?
Project Engineering & Economics

• Design
• Economic Feasibility- Cost of
• Manufacturing
production
• Process Facilities
• Investment - Expansion
• Modification of existing facility
Course Objectives
• To Develop the Concept of the start of a plant design M1
and find the best design method
• Draw Block Diagrams/Process Flow Diagrams and
plant layout of processes plant
• To Understand the various components of the project
cost M2,M3 & M4
• To understand the components of profit and loss
• Identify and understand various hazards and safety M5
measures in Chemical Industries
Context
Rank Company Total revenue (in billion ₹)

Total revenue

Rank Company (in billion ₹)

1 Reliance Industries 5142.17
2 State Bank of India 3853.38
3 Indian Oil Corporation 3748.28
4 Oil & Natural Gas Corporation 3251.79
5 Tata Motors 2496.46
6 Bharat Petroleum Corporation 2414.25
7 Tata Consultancy Services 1673.11
8 ICICI Bank 1613.36
9 Tata Steel 1561.74
10 HDFC Bank 1558.85
What Drives Process Development?
What Drives Process Development?
What Drives Process Development?

1. The need – Do we need cleaner fuel?

Expensed Engineering
2. If need is satisfactory - a preliminary
(re)search
• Literature Review
• Patent search
• Look up at present state-of-the-art
What Drives Process Development?
3. Research –
• Experimental measurements in the laboratory
• Modeling and validation

Expensed Engineering
• Preliminary economic viability
4. Pilot Plant studies
• Data Generation for commercialization and market
survey
5. Complete market survey –
• Limited launch for customer feedback (Prototype
version)
• Capital cost estimation for the full-scale plant
• Return on investment and a complete cost-and-profit
analysis is done
 What Drives Process Development?
Bharat Bharat Bharat Bharat
Characteristics
Stage II Stage III Stage IV Stage V/VI
Sulphur, Total, Max mg/kg for diesel 500 350 50 10
Sulphur, Total, Max mg/kg for
500 150 50 10
gasoline
Stricter Mercaptane
R-SH,
s R-S-S-R
fuel Better
Understa-
?
Thiophenes
standards Higher understanding
S of

Relative Reaction Rate

nding bed
conversion levels Thiophenes
with Me at C- hydrodynamics of
2/C-5 S Me structure
Heavy Benzothiophene
bed
s S
crudes Benzothiophenes
with Me at C-2/C-7 Me
Average Sulphur Content of Crude to S
16000
14000 Refineries Dibenzothiophenes
12000
10000 S
PPM

8000 Dibenzothiophenes with Me at C-4

6000
4000 S
2000 Me
0
Dibenzothiophenes with Me at C-4 & C-6 S
Dec-1992

Nov-2000

Dec-2011
Aug-1986

Sep-1997

Aug-2005
Oct-1989
May-1991

Apr-1999

Oct-2008
May-2010
Jan-1985

Jul-1994

Jul-2013
Mar-1988

Jun-2002
Jan-2004

Mar-2007
Feb-1996

Me Me

Increase in size and difficulty for

Year HDS
http://www.siamindia.com/scripts/gasoline.aspx
*Effect of Packing on Performance of
US Energy Information Administration (eia) Trickle Bed Reactor, Ph.D. Thesis. Tahmeed Aijaz, IIT Delhi
 What Drives Process Development?
Hydrocarbon Feed
Hydrogen Increasing Detail
Hydrocarbon
• MultiphaseFeed
co-current down flow fixed bed reactors
Hydrogen
• Characterized
Hydrogen by trickle flow
0.001 < Gm < 2.0 kg/m2-s Reactants Products

0.083 < Lm < 25.0 kg/m2-s

• Operated at high temperature and pressure
34 – 102 bar
345 0 C- 425 0 C
Pellet Level Pore Level Active Site Level
Reactor ~10-9 m
Outlet ~10-3 m ~10-6 m
Reactor Level Increasing Complexity
~ 10 m
Trickle Bed Reactor
Saroha, A. K., & Nigam, K. D. P. (1996). Reviews in Chemical Engineering, 12(3-4), 207–347.
*Effect of Packing on Performance of Trickle Bed Reactor, Ph.D. Thesis. Tahmeed Aijaz, IIT Delhi 11
Steps of Process Development?

Expensed Engineering

Capitalised Engineering
Chemical Engineering Projects

• Modifications – Additions to existing plants,

also known as retrofitting
• Augmenting production capacity
• Entirely new process – from lab to commercial
scale (eg, new drug)
Batch vs Continuous Process
Batch Continuous
Production Rate ~few kg >5t/h
Product range Often multiple Single
Cost of final Very High Marginal
product
Fouling Severe Not severe
Catalyst Life Short Good
Technology Novel Proven
Readiness
Market Nascent Established
Toxicity Potentially Low
hazardous
Control Easy Complex
E.g. Pharmaceuticals, Refinery,
Fine Chemicals Petrochemical
 Lab vs Pilot vs Demo Plant- The
problem of scale-up

Lab-scale
Pilot-scale Demo Plant
• • Operated continuously to
Also referred as Bench
Scale Engineering
• Workhorse for full-scale
demo plant
demonstrate commercial
• Testing of hypothesis viability
(kinetics, catalyst …) Procurement and
• Features all process
conditions (product
• Testing for possible
safety and hazard of
• Often a batch process
• Limited operating window
(~ few gm of catalyst)
Construction(EPC)
separation and purification) commercial plant
• Limited continuous operation• Limited product launch
for market
Plant Layout

Feed Reactor Product

Ideal Chemical Process

ISBL OSBL

Typical Plant Layout

ISBL – Inside Battery Limit

OSBL – Outside Battery Limit
Ancillaries

• Supply of utilities – water, cooling, process air/water

• Power – Captive power
• Maintenance
• Fire-fighting and safety
• Troubleshooting
• Laboratory – product quality and testing
• Accommodation for personnel
Attainment of Plant Capacity
• Generally, a plant is designed to operate continuously (24 x7)

Attainment (%) = (Hours operated/ 8760) x 100 %

• Plant downtime due to maintenance – Clean-up, Catalyst

replacement/regeneration, troubleshooting

• Continuous operation more economical large-scale production

 Design Factors
• Design is an art with uncertainties
• Design Engineers overdesign – Design Factors, Factor of
safety (Safety Factor, Margin of safety)
• Process Calculations
• Structural stability (and integrity) of process equipment
• Implications for project objective, cost, safety of personnel
• A trade-off between design objective and yet stay within
(tight) margins to remain competitive
 Standards and Codes

• National Institute of Standards and Technology (NIST)

• American National Standards Institute (ANSI)
• American Petroleum Institute (API)
• American Society for Testing Materials (ASTM)
• American Society of Mechanical Engineers (ASME)
• Tubular Exchanger Manufacturers Association (TEMA)
(heat exchangers)
• International Society of Automation (ISA)
• Bureau of Indian Standards (BIS)
Process Flowsheet Development
• Process Flowsheets are key to process development
• Also referred to as Process Flow Diagrams (PFDs) - is a pictorial
representation of a process
• Specialist/Experienced Design Engineers develop them for
• Normal Operation (start-up/shut-down)
• Maintenance, Revamp or Troubleshooting
• Modification
• Key Features (not limited) – Streams and their interconnections,
process conditions like – stream flow rates, pressure, temperature, and
operating conditions, control valves
• Elaborate PFDs can include material and energy balance
• Piping and Instrumentation (P&ID) are detailed versions of PFDs
• Tools – Microsoft VisioTM
Process Flowsheet Development
Process Flowsheet Development

Cooling Water Cooling Water

(CW) (CW)

Steam Methane Reforming (SMR) CH4 +H2O↔CO+ 3H2

Reaction
Water Gas Shift (WGS) Reaction CO+H2O↔CO2 +H2
 Phase 1:
Project Structure Process design

Phase 2: Plant
design
Cost Estimation
• Estimation of the product revenues and costs of production is a
key step in determining the profitability of a process

Capital Cost

Fixed Capital Working

Investment Capital

• Investments on ISBL • Cash Flow

• Investments on OSBL
• Engineering and Construction Cost
• Contingency Charges
Fixed Capital Investment

Investments on ISBL - Direct

• Process Equipments (Vessels, Reactors, Pumps, Compressors, Heat
Exchangers…)
• Bulk Items (Pipes, Wires, valves, instruments…)
• Civil Work (Roads, Foundation, Buildings…)
• Manpower – Labour and supervision

Indirect
• Temporary construction, Field expenses (canteen for workers, social benefits
• Construction Insurance
• Miscellaneous - Local Taxes, Duties or Octroies, transportation
Fixed Capital Investment
Investments on OSBL
• Power supply (Power plants, Substations, transformers, power lines…)
• Steam Supply (Boiler, Condensers, Condensate Line, Boiler water…)
• Cooling Towers (Cooling water, Blowers,…)
• Water (Demineralized (DM), pipes, pumps, site drainage…)
• Laboratories (Sample and product testing…)
• Air Separation Plants (Oxygen, Nitrogen…)
• Plant Utilities (Emergency Services, Firefighting equipment, …)
CostOSBL~ (20-50%) CostISBL

Engineering and Construction Cost

• Plant Layout (Design, Drafting, Pilot/Demo plants, Process Development…)
• Planning and procurement of materials
• Administrative Costs (Manpower, Inspection, Travel…)
• Overall Supervision
CostEngineering~ (30% CostISBL)+ CostOSBL
Fixed Capital Investment
Investments on OSBL
• Power supply (Power plants, Substations, transformers, power lines…)
• Steam Supply (Boiler, Condensers, Condensate Line, Boiler water…)
• Cooling Towers (Cooling water, Blowers,…)
• Water (Demineralized (DM), pipes, pumps, site drainage…)
• Laboratories (Sample and product testing…)
• Air Separation Plants (Oxygen, Nitrogen…)
• Plant Utilities (Emergency Services, Firefighting equipment, …)
CostOSBL~ (20-50%) CostISBL

Engineering and Construction Cost

• Plant Layout (Design, Drafting, Pilot/Demo plants, Process Development…)
• Planning and procurement of materials
• Administrative Costs (Manpower, Inspection, Travel…)
• Overall Supervision
CostEngineering~ (30% CostISBL)+ CostOSBL
Fixed Capital Investment
Contingency

• Supply Bottlenecks and price escalation

• Currency Fluctuations
• Labour Dispute
• Natural Calamities (Flood, Earthquake, COVID….’Act-of-God’)
• Project Modification

CostContingency~ (10% CostISBL)+ CostOSBL

Total Capital Investment = Fixed Capital Investment +Working Capital

Fixed Capital Investment
Variable Costs of Production

• Raw Materials
• Utilities – fuel, water, steam
• Consumables
• Effluent disposal
• Packaging and shipping
Cost Estimates
Cost Curve Methods – Order-of-magnitude ±30%
𝑛
𝑆2
𝐶2 = 𝐶1
𝑆1
𝐶2 ISBL Capital Cost with capacity 𝑆2
𝐶1 ISBL Capital Cost with capacity 𝑆1
𝑛 (0.8-0.9) Mechanical (pumps, compressors…) intensive industries
0.7 Petrochemical
(0.4-0.5) Speciality Chemicals and Pharmaceuticals
Petroleum Refinery, petrochemicals, and gas processing (published by Hydrocarbon
Processing )
𝐶1 𝑛 𝑛
𝐶2 = 𝑛 𝑆2 = 𝑎𝑆2
𝑆1
Cost Estimates
Step-Count Method – Bridgewater’s Method (1979)

𝑄 0.675
𝑄 ≥ 60000 ∶ 𝐶 = 3200𝑁 (Old: 4320)
𝑠

𝑄 0.3
𝑄 ≤ 60,000: 𝐶 = 280000𝑁 𝑠
𝑄 − 𝑃𝑙𝑎𝑛𝑡 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑖𝑛 𝑀𝑒𝑡𝑟𝑖𝑐 𝑡𝑜𝑛𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝐶 − 𝐼𝑆𝐵𝐿 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝑠 − 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛
𝑁 − 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 (Reactors, Ancillaries, Separation unit…)
Cost Estimates
Cost Estimates
Cost Estimates
Equipment Cost
𝐶𝑒 = 𝑎 + 𝑏𝑆 𝑛
Cost Estimates
Equipment Cost
Cost Estimates
Equipment Cost
Cost Estimates
Factorial Method – Lang Factors

ISBL Fixed Capital Cost of a plant is expressed as a function of the total

purchased equipment
𝐶 = 𝐹 ෍ 𝐶𝑒

𝐶 − 𝑡𝑜𝑡𝑎𝑙 𝑝𝑙𝑎𝑛𝑡 𝐼𝑆𝐵𝐿 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐶𝑜𝑠𝑡

෍ 𝐶𝑒 − 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑚𝑎𝑗𝑜𝑟 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡

𝐹 − 𝐼𝑛𝑡𝑎𝑙𝑙𝑎𝑡𝑖𝑜𝑛 𝐹𝑎𝑐𝑡𝑜𝑟 𝐿𝑎𝑛𝑔 𝐹𝑎𝑐𝑡𝑜𝑟

−3.1 𝑓𝑜𝑟 𝑠𝑜𝑙𝑖𝑑𝑠 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑝𝑙𝑎𝑛𝑡𝑠
−4.74 𝑓𝑜𝑟 𝑓𝑙𝑢𝑖𝑑𝑠 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑝𝑙𝑎𝑛𝑡𝑠
−3.63 𝑓𝑜𝑟 𝑚𝑖𝑥𝑒𝑑 𝑓𝑙𝑢𝑖𝑑𝑠 − 𝑠𝑜𝑙𝑖𝑑𝑠 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑝𝑙𝑎𝑛𝑡
Cost Estimates
Cost Estimates
Detailed Factorial Estimates
Total Investment Required
1. Prepare material and energy balances; draw up preliminary flow sheets; size major
equipment items and select materials of construction

2. Estimate the purchased cost of the major equipment items𝐶(𝑒 = 𝑎 + 𝑏𝑆 𝑛 )

3. Calculate the ISBL installed capital cost

4. Calculate the OSBL, engineering, and contingency costs using the factorial method

5. The sum of ISBL, OSBL, engineering, and contingency costs is the fixed capital
investment (Step 3 +Step 4)

6. Estimate the working capital as a percentage of the fixed capital investment; 10% to
20% is typical

7. Add the fixed and working capital to get the total investment required.
Cost Index
𝐶𝑜𝑠𝑡 𝐼𝑛𝑑𝑒𝑥 𝑖𝑛 𝑌𝑒𝑎𝑟 𝐴
𝐶𝑜𝑠𝑡 𝑖𝑛 𝑌𝑒𝑎𝑟 𝐴 = 𝐶𝑜𝑠𝑡 𝑖𝑛 𝑌𝑒𝑎𝑟 𝐵
𝐶𝑜𝑠𝑡 𝐼𝑛𝑑𝑒𝑥 𝑖𝑛 𝑌𝑒𝑎𝑟 𝐵
Why?
• Inflation
• Wage Escalation

How?
• Historical Cost Data
• Weighted Average Indices – Composite (Labour, Material, Location…)
• Chemical Engineering Plant Cost Index (CEPCI)- by Chemical Engineering
• Marshall and Swift index (M&S Equipment Cost Index)- by Chemical Engineering
• Nelson-Farrer Refinery Construction Index (NF index) - by Oil and Gas Journal
 Cost Index (CEPI)

• Base Year 1963

• Base Index 100
• Published Quarterly

The CEPCI consists of a

composite index
• Equipment
• Construction
• Labor
• Buildings
• Engineering &
Supervision

Source: https://personalpages.manchester.ac.uk/staff/tom.rodgers/Interactive_graphs/CEPCI.html?reactors/CEPCI/index.html
Nelson-Farrer Refinery Construction
Index (NF index)
• Base Year 1946
• Base Index 100
• Published Quarterly
• Petroleum and Petrochemical
Industry
-Pumps, compressors, etc.
-Electrical machinery
-Internal combustion engines
-Instruments
-Heat exchangers
-Miscellaneous equipment, average
-Materials
-Labor

https://www.ogj.com/home/article/17229698/nelsonfa
rrar-cost-indexes
Marshall and Swift index (MS)
Example 7.4
The purchased cost of a shell and tube heat exchanger, carbon shell, 316 stainless
steel tubes, heat transfer area 500 m2, was $64,000 in January 2003; estimate the
cost in December 2010. Use the M&S Equipment Cost Index

Solution
Index in 2003 = 1123.6
Index in 2011 = 1476.7
So, the estimated cost in December 2010
= $64,000 × 1477/1124 = $84,000
Working Capital (WC)
Working Capital (WC) = Current Assets – Current Liabilities
•Cash-at- •Accounts
bank or payable
• Value of Raw Materials, (by) products inventory
equivalent •Bank
• Cash-on-hand to meet estimated
•Accountsexpenses like – wages, raw material
overdrafts.
purchase receivable •Sales, payroll,
• Accounts Payable for products manufactured
•Inventory and income
• Spares Inventory •Short-term taxes.
• Taxes investments •Wages.
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 •Rent.
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
= •Short-term
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 loans.
= 5 − 30% 𝑜𝑓 𝐹𝐶𝐼
•Outstanding
𝐹𝑖𝑥𝑒𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡(𝐹𝐶) + 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
expenses
Typical for general chemicals and petrochemicals, it is 15 % of FCI
Fixed Capital (FC) vs Working Capital
(WC)
FC WC
Capital Investment in the Capital Invested in current
Definition long-term assets of an assets of an enterprise
enterprise
Objective Strategy oriented for goals Operational need

Type of asset Non-Current Current

Liquidity No High

Long-term Short –term (usually one

Term
accounting year)
Tangible assets like- Operational needs-
Use
Equipment, plant, buildings wages, inventory
Estimation of Revenue and
Production Cost
Fixed Cost of Production – Fixed production costs are costs that are
incurred regardless of the plant operation rate or output. Even if the plant cuts
back its production, these costs are not reduced
• Labour
• Supervision
• Salary and wages
• Maintenance
• Rent and taxes
• Corporate Overhead Charges (R&D, Sales and Marketing, GA Costs)
Fixed Costs of bigger plants are less
Variable Cost of production -Variable costs of production are costs that are
proportional to the plant output or operation rate
• Raw Materials
• Utilities – air, nitrogen, water, fuel…
• Consumables – Catalyst, solvents, inert, acids…
• Waste/Effluent Disposal
• Packaging and shipping
Estimation of Revenue and
Production Cost
Revenue
• Income earned from sales
• Sale of By-product
• Optimization with waste disposal
Margin and Profits
Gross Margin = Revenues – Cost of raw material consumed
• Cost of raw material = 80-90% Cost of production
• Significant contributor to the variable cost of production
• Typically for bulk petrochemicals and fuels ~10% Revenue
• Pharmaceutical products ~ 40-80% Revenue
Variable Contribution Margin = Revenues – Variable Costs of Production

Profits
The cash cost of production (CCOP) is the sum of the fixed and variable production costs:
CCOP = VCOP+ FCOP
Where,
VCOP = sum of all the variable costs of production minus by-product revenues
FCOP = sum of the fixed costs of production
The gross profit is
Gross profit = Main product revenues− CCOP
Net profit = gross profit − taxes
Cash Flows
Project Engineering & Economics (PEE)