ENGINEERING ESTIMATES
FOR GASIFICATION
PROJECTS
Presented to:
2008 Gasification Technologies Council
Authors: L. Bonnell; J Hemmings; J. Leatherwood; J. Davis
SNC-Lavalin, Houston Business Unit
The information contained herein is gathered from public and non-confidential sources and is offered only within the context of this non-authoritative presentation. The values
presented herein are nominal and typical values for discussion and presentation purposes only. The material is subject to frequent and substantial change over time and some sources
cannot be independently verified. This information is not suited for technical basis of design nor for financial, business or investment decisions. The format and content are that of the
Authors.
Large Scale Gasification Projects
Project
j
Development
p
Issues
Accurate capital
p
cost information is required
q
early
y in design
g to make
investment decisions on projects that require 32- 40 months to first
production.
The accuracy of any cost estimate is a direct function of the amount of
upfront engineering effort expended, i.e. work-hours, services cost
and calendar time and the skills of the estimating team
How do we select the proper capital cost estimate to satisfy:
♦ lender requirements;
♦ lead
lead--time to financial close ((how much design
g work is done);
);
♦ Owner desire to minimize costs prior to financial close
Pre-FEED
ESTIMATE DEFINITION#
Conceptual P li i
Preliminary
Assessment
Feasibility D t il d
Detailed
Assessment
Process
Definition
Project
Definition
FEED –
Validation
EPCMImplementation
Study
Class V
Class IV
Class III
Class II
Class I
(< 1% eng.)
(1-5% eng.)
(5-25% eng.)
(25-50% eng.)
( >50% eng.)
g)
+35%/-20% +25%/-10%
+15%/-10%
+10%/-10%
Control
Definitive
+100%/-50%
+50%/-30%
Scoping /
Conceptual
Curve / OOM
•Business Model
•Project Objectives
•Economic Model
•General Location
Factored
Budget
•Business Plan
O
• Process Objective •Project Objectives
•H&M Balance
• Product Mix
•PFD-IFE
• Feedstock
•Product Mix
•No P&ID
•Project Objectives
•Technology Options
•Feedstock
F d t k Options
O ti
•Capacity Options
•Site Alternative
•Block Flow Diagram
•Preliminary
Preliminary Layout
1 - 2 mo.
•Prelim P&ID
•Sized Equip List
•Licensor PDP
•Equip. Layout-IFE
•Electric One-line
- PFD
•Utilities
- Equip. List
•Emissions
- Site Layout
•Pipe rack
- Utilities
Buildings
•Buildings
•DCS
I/O Count
- Emissions
• Licensor selection •HAZID/”What If”
Preliminary:
- H&M Balance
• Few/No quotes
•Verbal quotes
for major equip.
3 – 4 mo.
7 - 9 mo.
# Follows AACEI Cost Estimate Classification System
•Full P&ID- IFD
•IFC documents
•Equip. layout*
•Site Prep*
•Civil Design*
•Structural*
•Piping*
•Safety
S f t / Fire*
Fi *
•Equip. Datasheets*
•DCS Spec.*
•HAZOP Review
•Constructability
•EPCM Schedule
•FEL Rating
•Equipment & Bulk
purchased
ƒEngineering Hrs set
ƒLabor rates set
• Detailed Design
•Approved for
• Construction
•Procurement
•Construction
•Mechanical Complete
p
•Project closeout
•Punch List
•Turnover
•Firm quotes for
major equip.
*Client approved for
design
10 - 12 mo.
18 - 24 mo.
Estimate Basis – Raw Capital Costs
Equipment – tagged / named
30%
Bulk materialsmaterials- concrete, steel, pipe, etc.
25%
Field supervision & labor hours
20%
Engineering & Project Management services
9%
Temporary construction facilities
6%
Transportation; rigging; warehousing
4%
Site p
preparation;
p
; buildings;
g ; security
y
4%
Insurance; fees; licenses; permits; tolls; duty
2%
plus: Owner’s cost; cost during construction;
escalation; risk ; contingency
Lender Requirements for Initial Financing
Class I Capital Cost Estimate (nominally +10% / -10%)
Fully--defined Facility Design with Proven Technology
Fully
Permits Issued with no Challenges
GHG Planning – CO2 Plan
Experienced Project Team
D t il d E
Detailed
Execution
ti Pl
Plan & S
Schedule
h d l through
th
h Acceptance
A
t
Formal Risk Assessment (validates estimate accuracy)
Equity > 30% - 40% to preclude need for “wraps”
Fixed Price at financial close
Timing of Financial Close
Owners want low cost & short schedule
~25+% eng.
FEED
Owner Desired Timing of
Financial Close & Fixed price
EPC
Class II @ +15% / -10%
Timing of Financial Close – Different Objectives
Owners want low cost & short schedule
~25+% eng.
FEED
EPC
Owner Desired Timing of
Financial Close & Fixed Price
Class II @ +15% / -10%
Lenders want 10% estimate & fixed price
~ 60% eng.
FEED
Class I @ +10%
10% / -10%
10%
EPC
Convert to
fixed price
Resolving the Issue
Low cost & short schedule vs
vs. 10% estimate & fixed price
Convert to
Firmer Price
FEED
Class II
Extend
Cl
Class
I
EPC
Bridge
F di
Funding
1. Complete FEED to develop Class II target cost estimate; QRA to define risk
2. Bridge
g funding
g to develop
p Class I estimate – trend costs during
g extension
3. Fix equip., services, bulks (>65% of TIC) with remainder continuing to trend
4. Convert remainder to a firmer but not fixed total cost
Challenges to Estimate Accuracy
• ”Turmoil”
Turmoil in capital project costs
costs, schedules
schedules, labor cost
cost,
availability and lead times causes traditional estimating
methods utilizing historical data to be more uncertain.
• Historical cost database soon outdated.
• Less
L
predictability
di t bilit in
i equipment
i
t & material
t i l lead
l d time,
ti
costt
escalation, labor availability over extended time intervals.
• Critical suppliers pricing power – gasifier, ASU, turbines
Project Lessons Learned
1. Lack of understanding of project complexity - it is a “custom” design.
2. “Turmoil” impacts the ability to accurately predict future costs and
lead times making a fixed price project very risky.
3. Project
j
cost based upon
p equipment
q p
costs without site related issues
being considered.
4. Desire to ascribe greater accuracy to an estimate without supporting
technical documentation.
5. Insufficient funding and time allocated to execute design work to
properly support a high accuracy estimate.
6. Under
Under--estimation of p
permitting
g challenges.
g
7. Need for frequent open and honest communication among
Owner – Contractor – Lender to understand the true risks.
THANK YOU