INDEX

1. LECTURE 1 - INTRODUCTION
2. LECTURE 2 – PLANT DESIGN BASIS
3. LECTURE 3 – PROCESS EQUIPMENT
4. LECTURE 4 – INSTRUMENTS
5. LECTURE 5 – PIPING, PSV and P&ID
6. LECTURE 6 – INTRODUCTION OF REFINERY
 INDEX

7. LECTURE 7 - HYDRAULICS
8. LECTURE 8 – COSTING & PROJ. EVALUATION I
9. LECTURE 9 – COSTING & PROJ. EVALUATION II
10. LECTURE 10 – HAZOP STUDY
11. LECTURE 11 - SAFETY
 LECTURE 8

COSTING & PROJECT

EVALUATION II

4
III. Estimating Capital Costs
3.1 Accuracy of Purpose of Cost Est.
5 Levels
1. Class 5 – “Ballpark estimate”, “guess estimate”
Ø Accuracy: ±30 − 50%
Ø Estimated based on the costs of similar processes and requiring
essentially no design information.
Ø Used in “Feasibility study” and screening purposes.
2. Class 4 – “Preliminary”, “approximate”, “study”, etc.
Ø Accuracy: ±30%
Ø Estimated based on limited cost data and design details
Ø Used in making coarse choices between design alternatives.
3. Class 3 – “Definitive”, “Authorization”, “Budgeting”, etc.
Ø Accuracy: ±10 − 15%
Ø Estimated based on rough P&ID and approximate sizes of major
equipment
Ø Used for authorization of funds to proceed with the design to more
detailed design.
3.1 Accuracy of Purpose of Cost Est.
5 Levels
4. Class 2 – “Detailed estimates”, “Quotation”, “tender”, etc.
Ø Accuracy: ±5 − 10%
Ø Estimated based on completed (or near complete) process design,
firm quotes for equipment, and detailed breakdown and estimation
of the construction cost.
Ø Used for “project cost control” and estimates for “fixed price
contract”

5. Class 1 – “Tender”, “as-bid”.

Ø Accuracy: ±5 − 10%
Ø Estimated based on completed design and concluded negotiations
on procurement of specialized items and long lead-time items
3.1 Accuracy of Purpose of Cost Est.
Figure 1. Accumulation of Costs

As a project proceeds from initial concept through detailed

design to startup, costs begin to be accumulated,
particularly once procurement and construction get
underway.
3.1 Accuracy of Purpose of Cost Est.
Figure 2. Influence of Design Decisions

The ability of the design engineer to influence project cost

decreases and is minimal by the time construction begins
3.2 Rapid Cost Estimates
A. Historic Cost Data
Quickest way to make class 5 estimate is to scale it from
the known cost of an earlier plant that used the same
technology or from published data.

Where,
C2=ISBL capital cost of the plant with capacity S2
C1= ISBL capital cost of the plant with capacity S1
3.2 Rapid Cost Estimates
A. Historic Cost Data (Cont’d)
Values of exponents, n
Ø Processes that use a lot of mechanical work or gas
compression (e.g. methanol, paper pulping, solids-
handling plants): 0.8 – 0.9
Ø Typical chemical process: 0.7
Ø Averaged over the whole chemical process: 0.6, “six-tenth
rule”
Ø Small scale, highly instrumented process: 0.4 -0.5
3.2 Rapid Cost Estimates
A. Historic Cost Data (Cont’d)

The journal of “Hydrocarbon Processing” publishes supplements on refining,

petrochemical, and gas processing processes every other year.

Values of the parameters of a and n for some fuels and commodity

chemical processes are given in Appendix A. Please note that the costs in
the “Hydrocarbon Processing” supplements are supplied by the technology
vendors and suitable for ballpark estimates only.
3.2 Rapid Cost Estimates
Step Count Method
1. If cost data for a similar process is not available, then
class 5 estimate can sometimes be made by adding
contributions for different plant sections or functional
units.
2. For example, in many petrochemical processes,
roughly 20% of ISBL capital cost is in the reactor
section and 80% is in the distillation and product
purification sections.

3. An alternative approach is Bridgewater’s method,

which correlates plant cost against number of
processing steps (Bridgewater and Mumford, 1979).
3.2 Rapid Cost Estimates
For plants processing liquids and solids:

Notes:
Ø A functional unit includes all equipment and ancillaries needed
for a significant process step or function, such as a reaction,
separation, or other major unit operation.
Ø Pumping and heat exchange are not normally considered as
functional units unless they have substantial cost, for example,
compressors, refrigeration systems, or process furnaces.
Exercise 1

The process for making cyclohexane by saturation of

benzene consists of a feed effluent heat exchanger, a
saturation reactor, and a product stabilizer column.
Estimate the cost of a plant that produces 200,000 metric
tons per year (200kMTA) of cyclohexane using the
correlation in the table of Appendix A and Bridgewater’s
method.
3.3 The Factorial Method of Cost Est.
“Capital cost estimates for chemical process plants are often
based on an estimate of the purchase cost of the major
equipment items required for the process, the other costs
being estimated as factors of the equipment cost.”
A. Lang Factors
Lang (1948) proposed that the ISBL fixed capital cost of
a plant is given as a function of the total purchased
equipment cost by the equation.

Where,
C = total plant ISBL capital cost (including engineering costs);
Σ 𝐶𝑒 = total delivered cost of all the major equipment items: reactors, tanks,
columns, heat exchangers, furnaces, etc.
F = an installation factor, later widely known as a Lang factor.
3.3 The Factorial Method of Cost Est.
A. Lang Factors (Cont’d)
1. Lang originally proposed the following values of F,
based on 1940s economics:
Ø F = 3.1 for solids processing plant;
Ø F = 4.74 for fluids processing plant;
Ø F = 3.63 for mixed fluids-solids processing plant.

2. Hand (1958) suggested using different factors for

different types of equipment.
Table 1. Installation factors proposed by Hand (1958)
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates

“When more detailed design information is available,

then the installation factor can be estimated somewhat
more rigorously, by considering the cost factors that are
compounded into the Lang factor individually.”
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates (Cont’d)

The direct-cost items that are incurred in the construction

of a plant, in addition to the cost of equipment, are:
Ø Equipment erection, including foundations and minor structural
work;
Ø Piping, including insulation and painting;
Ø Electrical power and lighting;
Ø Instruments and automatic process control (APC) systems;
Ø Process buildings and structures;
Ø Ancillary buildings, offices, laboratory buildings, workshops;
Ø Storage for raw materials and finished product;
Ø Utilities (Services), provision of plant for steam, water, air,
firefighting services (if not costed separately as offsites);
Ø Site preparation.
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates (Cont’d)

The accuracy and reliability of an estimate can be improved

by dividing the process into subunits and using the factors
that depend on the function of the subunits:
Table 2. Typical Factors for Estimation of Project Fixed Capital Cost
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates (Cont’d)

The installation factors so far are for plants built from

carbon steel. When more exotic materials are used, then a
materials factor fm should also be introduced:

Then, the Lang factor equation can be expanded for each

piece of equipment to give:
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates (Cont’d)
Where,
3.3 The Factorial Method of Cost Est.
B. Detailed Factorial Estimates (Cont’d)
Material cost factors of typical construction materials
are shown in the table below.

Table 3. Materials Cost Factors, fm, Relative to Plain Carbon Steel

3.3 The Factorial Method of Cost Est.
Procedure

1. Prepare material and energy balances, draw up preliminary

flowsheets, size major equipment items, and select materials of
construction.
2. Estimate the purchased cost of the major equipment items.

3. Calculate the ISBL installed capital cost, using the factors given in
Table 2 and correcting for materials of construction using expanded
Lang factor equations with the materials factors given in Table 3.

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

factors given in Table 2.

5. The sum of ISBL, OSBL, engineering, and contingency costs is the

fixed capital investment.
3.3 The Factorial Method of Cost Est.

6. Estimate the working capital as a percentage of the fixed capital

investment; 10 to 20% is typical (or better, calculate it from the cost of
production if this has been estimated.)

7. Add the fixed and working capital to get the total investment required.
3.4 Estimating Purchased Equipment Costs

1. The factorial method of cost estimation is based on

purchased equipment costs and therefore requires good
estimates for equipment costs. Costs of single pieces of
equipment are also often needed for minor revamp and
de-bottlenecking projects.

2. Resources of Equipment Costs

Ø EPC companies have large amounts of high quality data.
Ø Commercial software (e.g. ECONOMIC EVALUATIONTM from Aspen
Technology)
Ø Professional cost engineering literature (e.g. Cost Engineering –
Journal of the Association for the Advancement of Cost Engineering
International, AACE International, The Cost Engineer – UK
Association of Cost Engineers).
Ø Open literature.
3.4 Estimating Purchased Equipment Costs
Correlation for Equipment Cost Estimating

The prices are all for carbon steel equipment except where
noted in the table.
Exercise 2

A plant modification has been proposed that will allow

recovery of a byproduct. The modification consists of
adding the following equipment:

Ø Distillation column, height 30 m, diameter 3 m, 50 sieve trays,

operating pressure 10 bar;
Ø U-tube heat exchanger, area 60m2;
Ø Kettle reboiler, area 110m2;
Ø Horizontal pressure vessel, volume 3m3, operating pressure 10 bar;
Ø Storage tank (cone roof type), volume 50m3;
Ø Two centrifugal type I pumps, flow rate 3.6m3/h, driver power 500W;
Ø Three centrifugal type II pumps, flow rate 2.5m3/h, driver power 1kW
(two installed plus one spare)

* Driver type of a pump: explosion-proof motor

Exercise 2 (Cont’d)
Estimate the installed ISBL capital cost of the modification
if the plant is to be built from type 304 stainless steel.
Estimate the cost using both Hand’s method and the
factors given in Table 2.

Notes:
1. For the total weight of distillation column:
Ø Shell mass = 𝜋 𝐷! 𝐿! 𝑡" 𝜌
where,
Dc = vessel diameter, m
Lc = vessel length, m
tw = wall thickness, m (i.e. use 20 mm for this case)
𝜌 = metal density (i.e. 𝜌 of stainless steel = 8,000 kg/m3)
2. For horizontal vessel, use Lc = 2Dc
use tw = 8mm
Exercise 2 (Cont’d)

3. Selection of Materials
• Carbon Steel: Distillation Column Shell, Horizontal vessel, Pump
drivers
• Alloy: The remaining items, including trays, pump itself

4. Installation Factors
• No need to apply installation factors to ‘spare pumps’, ‘spare drivers’
and ‘trays’.
• Installation factor of storage tanks = 2.5
3.5 Cost Escalation

“The prices of the materials of construction and the

costs of labor are subject to inflation. Some methods
should be used to update old cost data in estimating at
the design stage and to forecast the future construction
cost of the plant.”

Ø The method usually used to update historical cost data makes

use of published cost indices. These relate ‘present costs’ to ‘past
costs’, and are based on data for labor, material, and energy
costs, published in government statistical digests.
3.5 Cost Escalation

Composite Index
Ø Chemical Engineering Journal
• Chemical Engineering Plant Cost Index (CEPCI, or CE)
• Marshall and Swift Index (M&S Equipment Cost Index)
Ø Oil and Gas Journal
• Nelson-Farrer Refinery Construction Index (NF Index)):
(Updated monthly and index for 40 types of equipment are
updated quarterly.)
Ø Engineering News Record Journal
• Based on Civil Engineering projects
3.5 Cost Escalation

Figure 3. Variation of major cost indices

Exercise 3

The purchased cost of a shell and tube heat exchanger,

carbon shell, 316 stainless steel tubes, heat transfer area
500m2, was $64,000 in January 2003; estimate the cost in
January 2010. Use the M&S Equipment Cost Index.

Sol)
From Figure 3,
Index in 2003 = 1,123.6
Index in 2007 = 1,373.3

By extrapolation from the period 2003 to 2005, the M&S index for 2010
will be about 1,560.
So, estimated cost in January 2010 = $64,000 x 1,560/1,124 = $89,000
3.6 Location Factors
1. The cost of building a plant in any other location will
depend on
Ø Local fabrication and construction infrastructure;
Ø Local labor availability and cost;
Ø Costs of shipping or transporting equipment to site;
Ø Import duties or other local tariffs;
Ø Currency exchange rates, which affect the relative cost of locally
purchased
Ø items such as bulk materials, when converted to a conventional
pricing basis such as U.S. dollars.

2. These differences are often captured in cost

estimating by using a location factor:
3.6 Location Factors
Table 5. Location Factors (Year 2003)

Source: Aspen Richardson’s International Construction Cost Factor Location Manual (2003)
Exercise 4

The cost of constructing a 30,000 metric ton per year

(30kMTA) acrolein plant was estimated as $80 million
($80MM) on a 2006 U.S. Gulf Coast basis. What would
be the cost in U.S. dollars on a 2006 Germany basis?
The exchange rate each year is:
• Year 2003: 1 Euro = $1.15
• Year 2006: 1 Euro = $1.35

From Table 5, the 2003 location factor for Germany was 1.11. The exchange
rate in 2003 averaged about 1 Euro = $1.15, and it averaged about 1 Euro =
$1.35 in 2006.

The 2006 location factor for Germany is thus 1.11 x 1.35/1.15 = 1.3.
The cost of building the acrolein plant in Germany in 2006 is US$ 80 MM x 1.3
= US$104MM.
Appendix A – Process Cost Correlations
Appendix A – Process Cost Correlations

Ref.: “Chemical Engineering Design” by Towler and Sinnott

Appendix A – Process Cost Correlations
Appendix A – Process Cost Correlations
Appendix A – Process Cost Correlations
Appendix A – Process Cost Correlations
Appendix A – Process Cost Correlations
Appendix B – Purchased Equipment Cost

Ref.: “Chemical Engineering Design” by Towler and Sinnott

Appendix B – Purchased Equipment Cost
Appendix B – Purchased Equipment Cost
Appendix B – Purchased Equipment Cost
END OF LECTURE 9