Chemical Project Economics

Chemical projects have a special status in sustainable development of our society because we need chemicals in several forms such as pharmaceuticals, textiles, dyes, soap, detergents, cosmetics, food preservatives, fertilisers, fuels, metals, synthetic fibre, plastics, and so on. Without chemicals our life may become primitive and so we need plants and units to manufacture chemicals. Chemical plants deal with physico-chemical transformation of raw materials into value-added products with the help of various resources such as manpower, energy, water, space and money.The entire chemical manufacturing process could be a judicious combination of various unit processes and unit operations. For instance, in a refinery, crude oil is separated into various fractions, such as liquefied petroleum gas (LPG), naphtha, gasoline (petrol), kerosene, high-speed diesel and so on, by a series of distillation columns (distillation as unit operation). On the other hand, during the conversion of naphtha into aromatics, namely, benzene, toluene and xylenes (o, m and p), we use aromatisation as a unit process, then extraction followed by distillation as unit operations to recover the aromatics

The long-time business success of any project greatly depends upon the selection of an appropriate sustainable process or technology. The routine financial calculations, such as return on investment, payback period, internal rate of return, and so on, are not adequate indices of success of any project that is being conceived. For instance, a project to manufacture ethyl tertiary butyl ether (ETBE) as an octane booster may be financially lucrative but its success over its lifespan will depend primarily upon availability of ethyl alcohol and isobutylene, as raw materials.

The Site Selection is a very important pre-project planning activity. The project is constructed only once and, therefore, the site has considerable impact on the performance of the project during its life cycle.The project profitability and productivity are site specific. Sustainable development of a nation is realised through a well balanced, continuously growing agriculture and industrial sector. The setting up of an industrial project is a beacon of hope for many people because the project brings in social as well as economic change to the site (location). The infrastructure planning and industrial growth may not go hand in hand, in a vast developing country like India, due to complex interactions of variety of factors. The cluster theory may work well for the small European nations, but in a vast country like India it is the dispersal of an industry or those small clusters across the country that would be more meaningful for sustainable development. Too many projects clustering around one site precipitate some peculiar problems related to local infrastructure (such as housing, public transport, roads, rail links, pollution due to all types of vehicular traffic, water and power supply, treatment of domestic solid waste, liquid waste, and so on). Metro cities like Mumbai, Kolkata and Chennai could be the excellent examples of this aspect.

In Chemical Project Economics, estimates play a very important role. The journey of project conception to implementation (construction) proceeds through the estimates made at various levels. For instance, let us see we have conceived an idea to manufacture 1,00,000 TPA propylene from methanol. The financial viability of this technically sound concept is always first checked by computing an order of magnitude estimate. We may obtain an estimate of plant and machinery items either from the journals or professional magazines, or by directly from the process licensor. Through appropriate location index escalation index and cost-capacity relationship, we arrive at an order of magnitude estimate of the cost of the project. Based on the consumption figures of the raw materials and utilities, we can estimate the total or gross cost of production. This would then result in quick estimate of profitability and, hence, financial viability of the project. After concluding worthiness of an idea, one needs pre- preliminary study to gauge seriousness of further efforts. This is further strengthened by preliminary feasibility study based on budgetary estimate. When we decide to go ahead with project implementation, a detailed techno-economic feasibility study, often known as a bankable document, is required to seek term loan from financial institutions. This study is based on reasonably accurate (near accurate) estimate of project cost (fixed capital investment) and gross cost of production (operating cost). Only while implementing or constructing the project, real costs involved

Project cost includes all costs incurred while transforming an idea into reality by way of a plant constructed at the site and subsequent commissioning of the plant. This includes costs of tangibles in the form of land, buildings, plant equipments, instruments, electricals and piping, etc. Also included are costs of intangibles associated with services required to erect the plant and make it functional such as architects fees, know-how and engineering fees, expenses to obtain various statutory clearances, formation of a company wherever applicable and so on. The interest on term loan during construction period, cost associated with management of public issue (shares) too are port of the project cost. All these costs eventually become Project Cost and hence ‘capital item’ in the balance sheet of a company under application of funds. The project cost is also known as project capital outlay or fixed capital investment.

The plant and machinery item of the entire project cost schedule is very important because its contribution to the cost of project is the highest. For example, in case of petrochemical projects the plant and machinery component could be in the range of 40– 60% of the project cost. As seen earlier in Chapter 4, the accuracy of an estimate of the project cost is enhanced if we have a reasonably good estimate of the plant and machinery. Therefore, it is desirable to understand various components of the plant and machinery and methods of their cost estimate. In view of its importance it is desirable to devote a separate chapter to the same. A chemical plant consists of a variety of equipments (reactors, heat exchangers, towers for separation, rotating equipment such as pumps, blowers, compressors, turbines, and so on); interconnecting piping (pipes, valves, bends, elbows, flanges, etc); instrumentations (temperature, pressure and flow mass or volume indicators, controllers, PLC system, DCS systems, etc.) and electricals (motor drives, motor control cabinets, power receiving station, emergency power generation and distribution, cable and cable trays etc.). In any plant, since these components make the highest contribution to the cost, selection and sizing of equipments are, therefore, very important.