Process Economics

Introduction
 In traditional chemical engineering economics, we plan to make
a product that is already made by others.
 The competition fixes the price for our product.
 We are most concerned with the cost of producing the product.
 We can approach the economic challenges of commodity
chemicals by considering the process economics.
 That is, we focus on the details of the chemical process used to
make the chemical product.
 This concern with chemical process is one of the foundations of
chemical engineering.
 Should not be abandoned even when we now focus on specialty
products.
 That is chemical process concerns should be supplemented with
product concerns of this course.
A Hierarchy of Process Design
 Chemical process economics can be conveniently
organized with the design hierarchy mentioned
earlier:
1. Batch versus continuous,
2. Input-output structure,
3. Reactions, including recycles, and,
4. Separations and energy integration.
A Hierarchy of Process Design
 Let us use the hierarchy to analyze a commodity process.
 For most commodities, we normally never even consider batch
equipment.
 We go straight to the continuous process with dedicated
equipment.
 Our second step is the input-output structure.
 To study this we consider the manufacture of ammonia from
nitrogen and oxygen.
N2 + 3H2  2NH3
 The H2 is made from natural gas:
CH4 + O2  CO2 + 2H2
 This gives is the input-output structure given in the next slide.
A Hierarchy of Process Design
A Hierarchy of Process Design
 The third step begins to involve the details of the chemical
reactions.
 The reaction of N2 and H2 is slow, in spite of catalysts.
 Hence reaction is run hot.
 With stoichiometric feed, this yields ~ 20% conversion.
 The combustion of methane to make H2 has opposite problem –
it is too fast.
 If excess air is used, the H2 produced burns to make water,
hence methane is burned with much less air:
2CH4 + O2  2CO + 4H2
 This CO is separated and we run the water-gas shift reaction.
CO + H2O  CO2 + H2
 The above considerations result in a more elaborate process as
shown in the next slide.
A Hierarchy of Process Design
A Hierarchy of Process Design
 Finally, in the fourth step of the design hierarchy, the
separations and the energy requirements need to be specified.
 For e.g., how can the CO2 and H2 be separated?
 Cryogenic separation (liquefying the CO2) is prohibitively expensive.
 Probably, absorption using an aqueous solution of a nonvolatile
amine – conventional amine or hindered amine?
 The air used for methane combustion contains ~ 1% argon.
 This needs to be removed via a purge stream
 The purge, however, may also contain H2. How to recover it?
 These considerations are very important in the production of
commodities.
 The end result is a considerably more complicated flow sheet.
A Hierarchy of Process Design
Economic Potential
 The economic potential of the process is differently estimated at
different stages of the process development.
 [economic potential (first estimate)] = [revenue from product sales per
year] – [raw material cost per year]
 This potential should be positive for an attractive chemical process.
 Clearly in this definition of economic potential, the stoichiometry of the
process will be important.
 For e.g., in case of ammonia, air is free but methane is not.
 For two moles of ammonia made, three moles of methane are burned.
 To estimate this economic potential, we need a clear idea of the
process streams.
 Estimation of economic potential is easy for commodity products: the
current prices of ammonia and methane can be looked up.
 But not so for specialty products:
 Consider a new drug for treating depression, the drug may be made from
expensive raw materials but its selling price is not really known.
Economic Potential
 If the economic potential is positive after this simple first test, apply a
second criterion:
 [economic potential (second estimate)] = [revenue from product sales
per year] – [raw material cost per year] – [utility cost per year]
 This implies we know how much energy we will need to make our
product.
 To estimate this, we must have finished all four steps of our design
hierarchy.
 Again, to proceed, this potential estimate must be positive.
 The third estimate of economic potential includes capital cost:
 [economic potential (third estimate)] = [revenue from product sales
per year] – [raw material cost per year] – [utility cost per year] – [total
capital cost per year].
 We need an idea of the capital required to do this third estimate.
 This is not difficult but complicated – large number of separate costs to
keep track of.
Capital Requirements
Capital Requirements
 The scheme for calculating capital requirements has five steps.
 In the first step, we calculate the equipment costs.
 This is done by making estimates of the costs of different pieces of
process equipment.
 Tables and rules of thumb can be used for preliminary estimates.
 With this knowledge, the onsite costs are given heuristically as:
 [onsite costs]=4[equipment costs].
 In the second step, the fixed costs are calculated as:
 [fixed costs]= [onsite costs] + [offsite costs] + [indirect costs]
 The offsite costs include power generations (steam or
electricity) and any additional buildings (for management or
technical support).
 As a general rule,
 [offsite costs]=0.45[onsite costs]
Capital Requirements
 The indirect costs are mainly in-house engineering
and construction charges.
 We expect:
 [indirect costs]=0.25[(onsite costs) + (offsite costs)]
 Combining these relations, we find approximately:
 [fixed costs]=1.8[onsite costs] = 7.2[equipment
costs]
Capital Requirements
 In the third step of our scheme, we calculate the
total capital costs:
 [total capital costs] = [fixed costs] + [start-up costs]
+ [working capital]
 The start-up costs are for the extra engineers and
operators needed to get the plant running:
 [start-up costs]= 0.1[fixed costs]
 The working capital includes the product inventory:
 [working capital]=0.15[total capital costs]
 Combining, we now have:
 [total capital costs] = 1.30[fixed costs] =
9.4[equipment costs].
Capital Requirements
 In the fourth step of the scheme, we estimate the capital cost
per year from the total capital cost.
 We assume, the equipment life ~ 10 years.
 We also need the cost of money, assume ~ 15%.
 Thus:
 [capital cost per year] = [total capital cost](1.15)10/(10 years) =
4.0[equipment cost] per year.
 This final result is used to estimate the economic potential of
the chemical process.
 If the potential is still positive, we may decide to proceed.
 The point of all this is to show that process design is different
than product design.
Capital Requirements
 In chemical process design, we know we have a
market.
 The prices in the market are also known accurately.
 In chemical process design, we expect to use
continuously operated dedicated equipment.
 Hence, we are very much concerned with the process
details.
 For commodities, our profits may be huge, but our
profit margins are a few percent.
 This is almost never the case for specialty chemicals.
Capital Requirements
 In specialty chemicals, we are unsure
whether a market exists.
 We may not accurately know our product’s
price.
 The product may be made from relatively
cheap raw materials.
 We make batches, often in generic equipment
used for different products.
 Clearly, design and economics of specialty
chemicals are very different.
Capital Requirements
 One assumption made implicitly in all above
calculations is that we are operating in steady state.
 This means infinite lifetime for the product.
 This is not so in the case of chemical products.
 Chemical products can be expected to have a finite,
often short, lifetime in the marketplace.
 So we need to assess the economics of the project
over the projected lifetime of the product.
 We will next discuss how the viability of a product
over a short lifetime may be assessed.