Jones D.S.J., Pujado P.R. Handbook of Petroleum Processing

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ECONOMICS 845

Pour point (Max)

◦

F85

Visc.CS@122

◦

F55

Flash point (Pensky Martin) >250

◦

3.2. Performance guarantees

3.2.1. When owner operates the thermal cracker at conditions deﬁned by the contractor

with the feedstock and rates given in 3.1 above, the estimated (but not guaranteed)

yield structure will be as set forth in Table 17.9.1 attached.

3.2.2. The thermal cracker will be designed so that it will have the hydraulic capacity

to process 34,320 BPSD of the feedstock deﬁned in 3.1 above, with the design yield

structure deﬁned in 3.2.1 above.

3.2.3. Based on the yield structure deﬁned in 3.2.1 above, the contractor guarantees

that the fractionation section of the unit shall be designed so that the numerical

difference between the 5% point of the thermal cracker gas oil and the 95% point of

the thermal cracked naphtha, expressed as ASTM gap, shall be no less than 10

◦

F, a s

measured by ASTM D-86.

3.2.4. If the feedstock does not meet the assay deﬁned in Section 3.1 or if the thermal

cracker is not operated in accordance with contractor’s instructions, then the per-

formance guarantees set forth herein will be modiﬁed in accordance with sound

engineering practice, as appropriate, based on actual conditions during the test run

and using the same data sources and calculation methods as used in the design so as

to obtain a true measure of the unit’s performance.

3.2.5. The test methods that shall be used in evaluating all aspects of this guarantee

shall be as listed below:

Feed ﬂash point—ASTM D-93

Feed distillation—ASTM D-1,160

Product distillation—ASTM D-86.

Feed viscosity—ASTM D-445

Feed pour point

Gravity—ASTM D-287

Process performance and utility guarantees

4.0. Utilities

4.1. The process units will be designed so that the daily aggregate cost of utilities

consumed for all facilities covered in Section 4.2 herein shall not exceed $xxxxxxxxx

846 CHAPTER 17

Table 17.9.1. Design yield structure

wt% on Feed

Conversion to 340

◦

F TBP in furnace & transfer line 25.0

Products:

Gas to C5 9.0

Naphtha to 390

◦

F cut point 20.3

Gas oil 390

◦

Fto622

◦

F cut point 24.7

Fuel oil +622

◦

F cut point 46.0

when the process units are operated at the rates and conditions summarized in

Section 4.2 herein and with the individual unit utility costs as summarized in Section

4.3 herein.

4.2. The utilities guarantee is based on operating the process units at the rate and

conditions summarized below and deﬁned in more detail in Sections 2.0–5.0 of this

exhibit:

(Sec 2.0) New naphtha hydrotreater 13,500 BPSD fresh feed.

(Sec 3.0) New naphtha splitter 13,500 BPSD fresh feed.

(Sec 4.0) New thermal cracker 34,320 BPSD fresh feed.

(Sec 5.0) New light end unit 3,830 BPSD C

’s, C

mixed feed

(Sec 6.0) New diesel hydrotreater 9,000 BPSD fresh feed.

(Sec 7.0) New catalytic reformer 9,000 BPSD fresh feed.

This utility guarantee covers only those units listed above and does not include the

utilities of any revamped units (such as the existing debutanizer). All conditions

regarding feedstock composition and operating conditions deﬁned in Section 2.0 to

7.0 of this exhibit shall extend to the utilities guarantee.

4.3. The following unit costs for the individual utilities shall be used in computing

the daily aggregate cost of utilities:

Fuel gas $0.47 per mmBtu, LHV.

Fuel oil $0.23 per BPSD

Power $0.042 per KWH.

Water $0.5/1,000 US Gals.

Steam $0.83 / 1,000 Lbs

4.4. In the event that the daily aggregate cost quoted in Section 8.1 herein is exceeded,

contractor shall have the right to make any alterations it deems necessary in order

that the utilities guarantee can be met in a subsequent test run. Contractor shall make

alterations or pay a penalty as deﬁned in Section 8.5 herein at his sole option.

ECONOMICS 847

4.5. The penalty that the contractor shall pay in the event that the utilities guarantee

is not met ,and the contractor elects not to modify the plant, shall be the difference

between the average daily aggregate cost of utilities for the best test run made under

Section 10.0, and the guaranteed daily cost of utilities in Section 4.1 herein multiplied

by 700.

5.0. Qualiﬁcations for guarantees

5.1. Notwithstanding any other sections or statements in this exhibit, the guarantees

in Sections 2.0 to 4.0 inclusive, above are subject to change if Licensor information,

data, or designs for the licensed units should be revised at any time so as to differ from

the Licensor’s information, data, or designs in the Contractor’s possession on –Date–,

or if licensed units require more utilities than speciﬁed by the aforesaid Licensor

information, data or designs.

5.2. In no event shall the contractor be liable for contingent or consequential damages,

including damages for loss of products or proﬁt or for plant downtime.

6.0. Performance test procedures.

To determine whether the guarantees deﬁned in Sections 2.0 to 4.0 are met, the

following test run procedure will be used:

6.1. The contractor will notify the owner in writing when the plants or any portion

thereof is ready for initial operation. Within 30 days thereafter, the owner will perform

a series of test runs unless delays are caused by deﬁciencies that are the contractor’s

responsibility. If the performance test run for the plants or any portion thereof is not

conducted by the owner within 30 days after notiﬁcation by the contractor to owner

of availability for test run, it shall be conclusively presumed that the performance

guarantees have been met and that contractor’s obligations covered herein have been

satisﬁed and owner agrees to pay any sums due to the contractor as if the test runs

had been successfully met. The time of these test runs may be initiated at any hour of

day or night. Test periods shall be of 72 hr duration or less as mutually agreed upon

by owner and contractor and may be interrupted as follows:

6.1.1. For minor alterations, repairs, failure of feedstock, utility supply, or other

condition beyond the contractor’s reasonable control, each of which do not exceed

24 hr. the test run shall proceed promptly after the interruption and as soon as the

contractor deems the plant operation has leveled out. The sum of normal operating

periods before, between, and after such interruption shall be considered the required

test period when it totals 72 hr.

6.2. Owner shall be responsible for supplying all the necessary operating labor, feed

stocks, utilities, catalysts, chemicals, sampling laboratory analyses, and other supplies

848 CHAPTER 17

for operating and testing the process units. Owner shall maintain the process units in

accordance with good practice, and all catalysts shall be in essentially new condition

to the end that the process units will be in proper condition for the performance tests

provided for herein.

6.3. The contractor shall furnish observers and test engineers, excluding licensor

personnel, to technically advise owner during the performance tests. Contractor’s

observers shall have the right to issue instructions regarding the manner in which the

plant is to be operated during the test run. Owner shall comply with these instructions

unless the instructions are contrary to generally accepted safety practices or expose

equipment conditions of temperature, pressure, or stress greater than their maximum

allowable operating conditions.

6.4. Analyses of the streams and products for these tests shall be determined by

methods mutually agreed to by owner and contractor. Analysis will be conducted by

owner and may be observed or witnessed by contractor. In case of disagreement, a

referee laboratory may be selected by approval of both parties and paid for by the

owner.

6.5. Samples shall be spot and/or composite and sampling procedure shall be by

methods as mutually agreed upon by owner and contractor. Samples shall be taken

at uniform intervals. Elapsed time between samples or sample increments shall not

exceed 4 hr, and composite samples increments shall be of equal volume when ﬂow

rate is essentially uniform. All ﬂow rates, product rates, and analysis shall be averaged

over the test period. Where possible, tanks shall be gauged at frequent intervals to

substantiate meter readings.

6.6. The performance guarantees shall be considered satisfactorily met when the av-

erage of the performance results during the period meets or exceeds the performance

speciﬁed in Sections 2.0 to 4.0 of this exhibit. Owner shall be responsible for the se-

curity of the unit operating log sheets, charts, laboratory test results, gauging records,

and other pertinent information for the test period. Within 10 days after the comple-

tion of each performance test, owner shall submit a written statement for each unit

indicating whether the guarantee has been met. If the test is not acceptable to the

owner, then the owner shall specify in writing to the contractor in what respect the

performance has not been met .On request the owner shall submit to contractor all

records and calculations for review.

6.7. A performance test run shall be stopped when in the judgement of the contractor

alterations, adjustments, repairs, and/or replacements which cannot be made safely

with the equipment in operation must be made to enable the plant to meet and fulﬁll

the performance guarantees, or the data obtained during the test will not be sufﬁcient

to establish the actual performance of the unit within desired limits of error, or it

ECONOMICS 849

becomes obvious that such performance test cannot be satisfactorily concluded in the

current attempt.

6.8. If a performance test is stopped as provided above, or if the unit or units do

not meet their guaranteed performance during the test run, owner, when requested,

shall make the unit or units available to the contractor as soon as possible to make

such alterations or additions thereto as in contractor’s judgment are required to enable

the plant to fulﬁll the aforesaid guarantees. If the owner does not make the unit or

units available within three months, the performance guarantee will be considered to

have been met in it’s entirety. Contractor will make such alterations as it shall deem

necessary to make the unit or units perform as guaranteed and a further performance

test shall be conducted in accordance with the above procedure.

6.9. Process performance tests for the units described in Sections 2.0 to 3.0 along

with the appropriate pro rata of the utilities guarantee as set forth in Section 4.0, all

of this exhibit, may be carried out collectively and/or on an individual basis as may

be mutually agreed to by owner and contractor. If a test run involving more than one

process unit or section of a process unit indicates that any unit or section meets it’s

guarantees as set forth in this exhibit, then that unit or section shall be accepted.

6.10. Notwithstanding any other provision hereof, contractor’s liability for making

the changes units to make them perform as guaranteed in Sections 2.0 to 3.0 of

this exhibit shall be limited to $xxxxxx. In determining the total cost expended by

contractor there shall be included the engineering costs to the contractor of making

the necessary design changes, and the labor and material costs of implementing these

changes.

Chapter 17

17.2 Economic analysis

P. R. Pujad´o

Introduction

In this introductory economic analysis we cover two main subjects:

Economic analysis at one point in time

This “instantaneous”analysis is the most common since it entails the least difﬁculty

and requires the least amount of information. This is the type of analysis seen in Chem

Systems’PERP reports and in SRI’s PEP reports. If properly done and properly used,

the results derived from this analysis are excellent. In this write-up we devote most of

the attention to this analysis; in particular, we try to analyze each of the terms in detail.

Although this analysis requires the least information, in order to do a proper job the

amount of information required is usually still beyond what is commonly available in

the initial screening stages of a project. However, the insight provided by examining

the various entries is of great value as it helps to identify missing data. Also, even

with incomplete information, this type of analysis is especially useful to determine

the sensitivity of a project relative to a number of parameters.

Economic analysis over an extended period of time

This analysis, usually known as “cash ﬂow analysis,”is performed by analyzing the

(expected) performance of a project over an extended period of time, usually a number

of years at least equal to the capital depreciation or amortization period. The value of

this type of analysis is that it recognizes the “time value of money.”

A cash ﬂow analysis does not require more information than an instantaneous analysis,

but it does introduce some additional concepts in the calculation of the discounted cash

ﬂow rate or return or internal rate of return (IRR) and other discounting parameters.

851

852 CHAPTER 17

Calculation of the IRR used to be difﬁcult when slide rules prevailed, since it entails

a trial-and-error calculation; it is quite trivial with just about any computer or even a

small programmable calculator. A cash ﬂow analysis is an absolute necessity to ac-

count for the effects of taxation and inﬂation since these are usually spread out over

a number of years and the effects are carried over from year-to-year, especially when

deferred taxes accrue out of the different depreciation and/or amortization methods

used for tax accounting as opposed to ﬁnancial accounting. However, in order to keep

it simple, this Introductory Economic Analysis will not cover multiple depreciation

schedules, tax accounting, and the like.

Indirectly, the cash ﬂow analysis can also be used to decide what the prospective sale

price of a product should be. The price can be calculated so as to yield a desired

discounted cash ﬂow rate of return.

Accounting for inﬂation

The effects of inﬂation, though important in real life, tend to be irrelevant and mis-

leading for economic evaluations and can best be dismissed by always performing a

constant-dollar analysis.

If inﬂation needs to be taken into account, it is easy to incorporate inﬂationary fac-

tors that adjust the numerical values on an annual basis. The formulas provided in

the appendices in general do not apply when variable annual cash ﬂows have to be

accounted for. The calculations are then performed by creating a series of estimated

annual cash ﬂows and conducting the calculations by trial-and-error. Some of the

trial-and-error calculations are already programmed in the functions usually avail-

able in most PC software packages. Other calculations may require some simple

program coding; half interval splitting (dichotomous search) is usually suitable for

convergence.

The interpretation of the results when inﬂation is accounted for tends to be muddied

by the additive effect of inﬂation. The gross returns will increase if inﬂation leads to

increasing cash ﬂows but may decrease if inﬂationary pressures raise the costs faster

than the revenues.

Analysis at one point in time

This section examines what can be regarded as an analysis at one given point in

time. This “instant”analysis is normally conﬁned to a typical period in the life of the

project, usually one year. This is the usual type of economic analysis and is also the

type found in Chem Systems’reports, SRI’s reports, etc.

ECONOMIC ANALYSIS 853

An analysis of this type normally entails three parts:

Capital summary

Production cost summary

Reporting parameters

In the ﬁrst part, capital summary, we tabulate those items that may be candidates

for depreciation, amortization, or interest charges for both long-term and short-term

capital. Typical items are:

Erected plant cost

Erected offsites cost

Interest during construction

Catalyst and metals inventory

Working capital

If the economic analysis is intended to account for tax effects, a far more detailed

breakdown is required for capital items since, for tax purposes, the depreciation sched-

ules may vary considerably from item to item, principally as concerns the treatment

of machinery, equipment, and offsites.

The second part, production cost summary, provides a condensed tabulation of the

various items that contribute toward the ﬁnal cost of the manufactured product. There

are two basic ways of conducting an “instantaneous”economic analysis as described

herein: (a) to arrive at a cost of production, or (b) to arrive at a given return-on-capital

(ROI). Both formats are similar in concept and execution, the only difference being

that the latter, b, requires the assignation of cash values to the main product or products.

The following items are normally included:

Variable credits (often shown as credits against variable costs)

Materials

Product revenue (only shown if required to set margins)

By-product credits

Utilities

Utility credits

Variable costs

Materials

Raw materials costs

Catalysts and chemicals

854 CHAPTER 17

Utilities

Utility requirements

Operating costs

Labor

Maintenance

Operating expenses

Plant insurance

Property taxes

Direct overhead

General plant overhead

Sales and administration (often accounted for as overhead)

Capital items

Depreciation

Amortization

Interest on capital

Interest on working capital

Taxes

(only if the analysis is to consider tax effects)

Following is an itemized summary of each section.

The ﬁnal section of an economic analysis, instantaneous, or over time, may be referred

to as “reporting parameters.”In this section the project performance is measured by

using some commonly acceptable yardsticks: return-on-investment (ROI), pay-back

or pay-out time, internal rate of return (IRR), discounted cash ﬂow rate of return

(DCFRR), etc. They will be discussed in more detail later.

Capital items

The ﬁrst part of an economic analysis requires an exposition of the capital items. This

includes those items that can be either depreciated, amortized, or that enter indirectly

in the cost of production through either a long-term or a short-term interest charge.

Typical entries are:

Erected plant cost

Erected offsites cost

ECONOMIC ANALYSIS 855

Interest during construction

Royalties

Catalyst and metals inventory

Working capital

Erected plant cost

By erected plant cost we mean the estimated cost of construction inclusive of materials,

equipment and labor, plus design, engineering, and contractor’s fees within battery

limits as usually provided by cost estimating [Estimated Erected Cost or EEC]. It is

usually assumed that all the elements included within battery limits qualify for the

same depreciation rate; this need not be the case in real life.

Erected offsites cost

An estimated erected cost of offsites usually is not available at the early stages of a

project. Estimating the cost of offsites is difﬁcult, but not impossible. Two approaches

are available:

A gross estimation approach

An itemized estimation approach

The ﬁrst approach provides only a very rough estimate and makes use of some simple

but often unreliable guidelines. Essentially, these guidelines dictate that, if a plant is

a grass-roots facility, the cost of the offsites is about the same as the cost of the plant

within battery limits; if the plant is built on a developed site, the cost of the offsites is

about 30–50% of the cost of the plant within battery limits. These rules are good only

to show an allowance for offsites, but are inadequate for quantiﬁcation purposes. The

scope of offsites to be built for a grass-roots facility can vary enormously from case

to case: tank age, ﬂare, feed water treatment, steam plant, power distribution center,

cooling water facilities, efﬂuent treatment facilities, road terminals, rail terminals,

marine terminals (jetties, etc.), canteen, shops, administration buildings, etc. just to

give a few examples; units in remote locations may include “offsites”such as workers’

housing, sports, religious and recreational facilities, etc.

The second approach entails more work, but yields results that, at least, are more

justiﬁable. In this approach the various offsites and their capacities are itemized and

cost estimating rules are applied. An example can be found in the guidelines provided

by Chem Systems.

Interest during construction

This concept is often ignored or overlooked. Unfortunately, it is a signiﬁcant amount

that greatly contributes to the ﬁnal erected cost of a unit or complex.