Use of Propylene Splitter to Improve Polypropylene Business by Intratec Solutions

Use of Propylene Splitter to Improve Polypropylene Business

#IME002A Improvement Economics Use of Propylene Splitter to Improve Polypropylene Business 2012

Abstract Propylene is a major industrial chemical intermediate that serves as one of the building blocks for an array of chemical and plastic products, and was also the first petrochemical employed on an industrial scale. Globally, the largest volume of propylene is generated as by-product in steam crackers and through the fluid catalytic cracking (FCC) process in petroleum refineries. FCC units are by far the largest source of this material. Low purity propylene streams containing large amounts of propane â&#x20AC;&#x201C; commonly called refinery grade (RG) propylene â&#x20AC;&#x201C; are used internally in refineries to manufacture gasoline or as fuel. These streams may also be sold as a chemical feedstock to plants dedicated to the enhancement of their propylene content, so as to generate a more valuable product. The most pure grade available, polymer grade (PG) propylene, is used as feedstock to various chemicals, including polypropylene, its greatest output. There are several large, centralized facilities on the US Gulf Coast that process propylene/propane streams gathered from surrounding refineries and petrochemical plants into high-purity propylene. Some refineries chose to conduct this separation onsite. In addition to refineries, PG propylene consumers are also constructing propylene/propane separation units to become more competitive and to diversify their raw material supplier base and production cost structure. As an example, in July 2012, Braskem, a major petrochemical player, acquired the propylene/propane splitter assets at the Marcus Hook refinery, Pennsylvania, to generate PG propylene for its polypropylene plant. This report is a review of the purification of RG propylene into PG propylene. Also, a comparison of constructing this unit inside a refinery and inside a polypropylene plant is included. Both capital investment and operating costs for a propylene purification unit operating in the US Gulf Coast, China, and Germany are presented. The economic analysis presented in this report is based on a purification unit installed in a 400 kta polypropylene plant. The estimated CAPEX for such unit is USD 67 million on the US Gulf Coast. China presented the lowest CAPEX and OPEX, followed by the USA and Germany, respectively. Although the internal rate of return (IRR) in building a propylene purification unit inside a polypropylene plant is more than 30% on US Gulf Coast, the best results are obtained in constructing this unit inside a refinery. This is based on the fact that refineries have excess low-level heat sources available, as well as a supply of cooling water, which minimizes additional utilities supply units installation. Polypropylene manufacturing plants, however, do not usually have this advantage. The improvement installation in refineries leads to IRR of more than 35%.

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Contents Terms and Conditions .......................................................................................................................................................6 About Propylene ................................................................................................................................................................ 7 Introduction.........................................................................................................................................................................................................................7 Applications.........................................................................................................................................................................................................................7 Thermal & Motor Gasoline Uses.........................................................................................................................................................................................7 Chemical Uses...............................................................................................................................................................................................................................7

Manufacturing Processes ............................................................................................................................................................................................8

Process & Economics Overview ................................................................................................................................... 9 Improvement Summary...............................................................................................................................................................................................9 Brief Description & Block Flow Diagram .......................................................................................................................................................................9

Economic Summary .......................................................................................................................................................................................................10 Other Remarks....................................................................................................................................................................................................................10 Propylene-Propane Splitter Designs...............................................................................................................................................................................10 Mechanical Design & Installation......................................................................................................................................................................................11 Column Design Advancements.........................................................................................................................................................................................11

Process Analysis................................................................................................................................................................. 12 Process Description & Conceptual Flow Diagram.......................................................................................................................................12 Pre-Separation & Separation Steps ..................................................................................................................................................................................12 Treatment Step.............................................................................................................................................................................................................................12

Key Consumption ............................................................................................................................................................................................................12 Technical Assumptions.................................................................................................................................................................................................13 ISBL Major Equipment List ..........................................................................................................................................................................................15 OSBL Major Equipment List .......................................................................................................................................................................................15 Construction Scenarios.................................................................................................................................................................................................16

Economic Analysis ............................................................................................................................................................ 18 General Assumptions.....................................................................................................................................................................................................18 Capital Expenditures.......................................................................................................................................................................................................18 Fixed Investment.........................................................................................................................................................................................................................18 Fixed Investment Discussion ..............................................................................................................................................................................................19 2

Other Capital Expenses ...........................................................................................................................................................................................................19 Total Capital Expenses .............................................................................................................................................................................................................21 Regional Comparison...............................................................................................................................................................................................................21

Operational Expenditures ...........................................................................................................................................................................................22 Manufacturing Costs.................................................................................................................................................................................................................22 Depreciation...................................................................................................................................................................................................................................22 Regional Comparison...............................................................................................................................................................................................................22

Economic Datasheet & Discussion ........................................................................................................................................................................24 Economic Assumptions................................................................................................................................................................................................24

References............................................................................................................................................................................ 26 Acronyms, Legends & Observations .......................................................................................................................... 27 Methodology of the Analysis........................................................................................................................................ 28 General Approach............................................................................................................................................................................................................28 Assumptions........................................................................................................................................................................................................................28 General Considerations...........................................................................................................................................................................................................28 Fixed Investment.........................................................................................................................................................................................................................30 Start-up Expenses .......................................................................................................................................................................................................................30 Other Capital Expenses ...........................................................................................................................................................................................................30 Manufacturing Costs.................................................................................................................................................................................................................31

Contingencies & Accuracy of Economic Estimates.....................................................................................................................................31 Location Factor ..................................................................................................................................................................................................................32

List of Tables Table 1 – Major Propylene Consumers................................................................................................................................................................................7 Table 2 – Capital Cost & Economic Summary.................................................................................................................................................................10 Table 3 - Raw Materials & Consumption (per ton of Product) ............................................................................................................................12 Table 4 – Design & Simulation Assumptions...................................................................................................................................................................13 Table 5 – Main Streams Operating Conditions and Composition .....................................................................................................................15 Table 6 – Outside Battery Limits Major Equipment List............................................................................................................................................15 Table 7 – Inside Battery Limits Major Equipment List ................................................................................................................................................15 Table 8 – Construction Scenarios Assumptions (Based on Degree of Integration) ................................................................................17 Table 9 – Base Case General Assumptions........................................................................................................................................................................18 Table 10 – Bare Equipment & Direct Cost per Area (USD Thousands) ............................................................................................................18 Table 11 – Total Fixed Investment Breakdown (USD Thousands)......................................................................................................................19 Table 12 – Other Capital Expenses (USD Million)..........................................................................................................................................................19 Table 13 – CAPEX (USD Million) ...............................................................................................................................................................................................21 Table 14 – Manufacturing Fixed Cost (USD/ton) ..........................................................................................................................................................22 Table 15 – Manufacturing Variable Cost (USD/ton) ....................................................................................................................................................22 Table 16 – OPEX (USD/ton).........................................................................................................................................................................................................22 Table 17 – Depreciation Value & Assumptions ..............................................................................................................................................................22 Table 18 – Fixed Cost Assumptions.......................................................................................................................................................................................24 Table 19 – Technology Economics Datasheet: Propylene Purification Unit...............................................................................................25 Table 20 – Project Contingency...............................................................................................................................................................................................31 Table 21 – Accuracy of Economic Estimates ...................................................................................................................................................................31 Table 22 – Criteria Description..................................................................................................................................................................................................33

List of Figures Figure 1 – Process Simplified Flow Diagram....................................................................................................................................................................9 Figure 2 – Propylene Splitter with Heat Pump Design .............................................................................................................................................10 Figure 3 – Propylene Splitter with Heat Pump Design .............................................................................................................................................10 Figure 4 – Researches on Distillation Columns..............................................................................................................................................................11 Figure 5 – Inside Battery Limits Conceptual Process Flow Diagram.................................................................................................................14 Figure 6 – Construction Scenarios: Sketch........................................................................................................................................................................16 Figure 7 – Total Direct Cost of Different Scenarios (USD Thousands)..............................................................................................................20 Figure 8 – Total Fixed Investment of Different Scenarios (USD Thousands) ...............................................................................................20 Figure 9 – CAPEX per Location (USD Million)..................................................................................................................................................................21 Figure 10 – OPEX and Polymer Grade Propylene Price History (USD/ton PG Propylene)...................................................................23 Figure 11 – Operating Costs Breakdown per Location (USD/ton).....................................................................................................................23 Figure 12 – IRR vs. RG Propylene Purity (US Gulf)..........................................................................................................................................................24 Figure 13 – Methodology Flowchart....................................................................................................................................................................................29 Figure 14 – Location Factor Composition.........................................................................................................................................................................34

Terms and Conditions Information, analyses and/or models herein presented are prepared on the basis of publicly available information and non-confidential information disclosed by third parties. Third parties, including, but not limited to technology licensors, trade associations or marketplace participants, may have provided some of the information on which the analyses or data are based. Intratec Solutions LLC (known as “Intratec”) does not believe that such information will contain any confidential information but cannot provide any assurance that any third party may, from time to time, claim a confidential obligation to such information. The aforesaid information, analyses and models are developed independently by Intratec and, as such, are the opinion of Intratec and do not represent the point of view of any third parties nor imply in any way that they have been approved or otherwise authorized by third parties that are mentioned in this publication. The application of the solutions presented in this publication without license from the owners infringes on the intellectual property rights of the owners, including patent rights, trademark rights, and rights to trade secrets and proprietary information.

Intratec | Terms and Conditions

Intratec conducts analyses and prepares publications and models for readers in conformance with generally accepted professional standards. Although the statements in this publication are derived from or based on several sources that Intratec believe to be reliable, Intratec does not guarantee their accuracy, reliability, or quality; any such information, or resulting analyses, may be incomplete, inaccurate or condensed. All estimates included in this publication are subject to change without notice. This publication is for informational purposes only and is not intended as any recommendation of investment.

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About Propylene Introduction Propylene is an unsaturated organic compound having the chemical formula C3H6. It has one double bond, is the second simplest member of the alkene class of hydrocarbons, and is also second in natural abundance.

While CG propylene is used extensively for most chemical derivatives (e.g., oxo-alcohols, acrylonitrile, etc.), PG propylene is used in polypropylene and propylene oxide manufacture. PG propylene contains minimal levels of impurities, such as carbonyl sulfide, that can poison catalysts.

Thermal & Motor Gasoline Uses

Propylene is produced primarily as a by-product of petroleum refining and of ethylene production by steam cracking of hydrocarbon feedstocks. Also, it can be produced in an on-purpose reaction (for example, in propane dehydrogenation, metathesis or syngas-to-olefins plants). It is a major industrial chemical intermediate that serves as one of the building blocks for an array of chemical and plastic products, and was also the first petrochemical employed on an industrial scale. Commercial propylene is a colorless, low-boiling, flammable, and highly volatile gas. Propylene is traded commercially in three grades:

 Polymer Grade (PG): min. 99.5% of purity.  Chemical Grade (CG): 90-96% of purity.  Refinery Grade (RG): 50-80% of purity.

Applications The three commercial grades of propylene are used for different applications. RG propylene is obtained from refinery processes. The main uses of refinery propylene are in liquefied petroleum gas (LPG) for thermal use or as an octane-enhancing component in motor gasoline. It can also be used in some chemical syntheses (e.g., cumene or isopropanol). The most significant market for RG propylene is the conversion to PG or CG propylene for use in the production of polypropylene, acrylonitrile, oxo-alcohols and propylene oxide.

Propylene has a calorific value of 45.813 kJ/kg, and RG propylene can be used as fuel if more valuable uses are unavailable locally (i.e., propane – propene splitting to chemical-grade purity). RG propylene can also be blended into LPG for commercial sale. Also, propylene is used as a motor gasoline component for octane enhancement via dimerization – formation of polygasoline or alkylation.

Chemical Uses The principal chemical uses of propylene are in the manufacture of polypropylene, acrylonitrile, oxo-alcohols, propylene oxide, butanal, cumene, and propene oligomers. Other uses include acrylic acid derivatives and ethylene – propene rubbers. Global propylene demand is dominated by polypropylene production, which accounts for about two-thirds of total propylene demand.

Table 1 – Major Propylene Consumers Polypropylene

Mechanical parts, containers, fibers, films

Acrylonitrile

Acrylic fibers, ABS polymers

Propylene oxide

Propylene glycol, antifreeze, polyurethane

Oxo-alcohols

Coatings, plasticizers

Cumene

Polycarbonates, phenolic resins

Acrylic acid

Coatings, adhesives, super absorbent polymers

Source: Intratec – www.intratec.us

Intratec | About Propylene

Propylene 2D structure

Manufacturing Processes Propylene is commercially generated as a co-product, either in an olefins plant or a crude oil refinery’s fluid catalytic cracking (FCC) unit, or produced in an on-purpose reaction (for example, in propane dehydrogenation, metathesis or syngas-to-olefins plants). Globally, the largest volume of propylene is produced in NGL (Natural Gas Liquids) or naphtha steam crackers, which generates ethylene as well. In fact, the production of propylene from such a plant is so important that the name “olefins plant” is often applied to this kind of manufacturing facility (as opposed to “ethylene plant”). In an olefins plant, propylene is generated by the pyrolysis of the incoming feed, followed by purification. Except where ethane is used as the feedstock, propylene is typically produced at levels ranging from 40 to 60 wt% of the ethylene produced. The exact yield of propylene produced in a pyrolysis furnace is a function of the feedstock and the operating severity of the pyrolysis. The pyrolysis furnace operation usually is dictated by computer optimization, where an economic optimum for the plant is based on feedstock price, yield structures, energy considerations and market conditions for the multitude of products obtained from the furnace. Thus, propylene produced by steam cracking varies according to economic conditions. In an olefins plant purification section, also called separation train, propylene is obtained by distillation of a mixed C3 stream, i.e., propane, propylene, and minor components, in a C3-splitter tower (also called propylene-propane splitter, or simply P-P splitter). It is produced as the overhead distillation product, and the bottoms are a propaneenriched stream. The size of the C3-splitter depends on the purity of the propylene product.

Intratec | About Propylene

The propylene produced in refineries also originates from other cracking processes. However, these processes can be compared to only a limited extent with the steam cracker for ethylene production because they use completely different feedstocks and have different production objectives.

Refinery cracking processes operate either purely thermally or thermally – catalytically. By far the most important process for propene production is the fluid catalytic cracking (FCC) process, in which the powdery catalyst flows as a fluidized bed through the reaction and regeneration

sections. This process converts heavy gas oil preferentially into gasoline and light gas oil. The propylene yielded from olefins plants and FCC units is typically considered a co-product in these processes, which are primarily driven by ethylene and motor gasoline production, respectively. Currently, the markets have evolved to the point where modes of by-product production can no longer satisfy the demand for propylene. A trend toward less severe cracking conditions, and thus to increase propylene production, has been observed in steam cracker plants using liquid feedstock. As a result, new and novel lower-cost chemical processes for on-purpose propylene production technologies are of high interest to the petrochemical marketplace. Such processes include:

 Olefin Metathesis  Propane Dehydrogenation  Methanol-to-Olefins/Methanol-to-Propylene  High Severity FCC  Olefins Cracking For a better understanding of some of these technologies, see our Technology Economics Reports, available in the Publications section on our website, www.intratec.us.

Process & Economics Overview Improvement Summary

Figure 1 shows a simplified block flow diagram for the process.

The current publication provides a detailed assessment of an opportunity to improve the polypropylene business by the purchase of RG propylene to produce the PG propylene used in the process. This is achieved through the construction of a propylene purification unit inside the polypropylene plant.

The refinery grade propylene from refinery processes is sent to a pre-separation, where lights (ethylene/ethane) are extracted from the stream. Typical specifications for polymer grade propylene limit ethylene and ethane concentrations to around 30 and 500 ppm mol.

Also, as an alternative, the propylene purification unit can be constructed inside a refinery, i.e., inside the plant which provides the RG propylene. In this case, the refinery can sell a more valued product (PG propylene) instead of a low valued one (RG propylene). All the data and figures presented were prepared based on publicly available information. This information was carefully analyzed through a structured methodology involving process simulations, design procedures and mathematical models developed by Intratec.

Brief Description & Block Flow Diagram The process can be separated in three different steps: preseparation, separation, and treatment.

Optionally, if necessary, the pre-separation step can be modified to also remove some excess heavies (butylenes/butane). Then, the stream is sent to the separation unit, where propylene and propane are separated, achieving a propylene purity of, at least, 99.5 wt%. This is the minimum purity required for polypropylene unitsâ&#x20AC;&#x2122; raw material. Propane by-product is separated in this step. Contaminants that are not removed in the previous steps, must be removed to reach the limits of polymer grade propylene. These contaminants are: water, oxygenates, sulphur compounds, COS, arsine, and phosphine. This is accomplished in a treatment unit, placed after the separation section.

Source: Intratec analysis

Intratec | Process & Economics Overview

Figure 1 â&#x20AC;&#x201C; Process Simplified Flow Diagram

Economic Summary Figure 2 – Propylene Splitter with Heat Pump Design The table below summarizes the main economic indicators of the improvement proposed, including the CAPEX, OPEX, Sales, and EBITDA. All figures are additions to the economics of a polypropylene plant, following a typical improvement design.

Table 2 – Capital Cost & Economic Summary

Source: Intratec – www.intratec.us

If heat sources that can be used to heat the splitter reboiler are available in the facility in which the propylene purification system is installed, a non-heat pump system may be the best choice. However, if no source of sufficient low-grade heat is available, the use of a heat pump is typically the most economical choice.

Figure 3 – Propylene Splitter with Heat Pump Design

Source: Intratec – www.intratec.us

Intratec | Process & Economics Overview

Source: Intratec – www.intratec.us

Mechanical Design & Installation Dependent on the number of trays needed to achieve the propylene purity in the separation, two towers may be required. Contingent on the tray spacing, 150 to 200 trays can be used in a single column, which could lead to extremely high towers (up to 100 m).

Figure 4 â&#x20AC;&#x201C; Researches on Distillation Columns

Proprietary tray designs allow narrow spacing between trays (25 cm, for instance) and are ideally suited for propylene/propane separation because of the relatively high liquid loads. These trays are typically less efficient than conventional high-capacity trays and are more costly on a per-tray basis. However, the possibility of accommodating more trays in a given tower height is beneficial since reduces tower diameter, reboiler area and compressor horsepower. A major consideration for the tower mechanical design is the ratio of the length to diameter (L/D), which should generally not exceed 20-25. Also, depending on the tower length (more than 50 â&#x20AC;&#x201C; 60 m), other factors such as wind or seismic loads may govern the vessel design and increase the overall cost, to the extent that a two-tower system should be considered. The construction of a P-P splitter can be done in two ways, either shop-fabrication and transportation to the job site, or field fabrication. This choice has a significant impact on capital costs and is dictated by the capability of the fabrication shop, the column dimensions, and available of land/water transportation limitations. Commonly, towers with diameters of 3.5 â&#x20AC;&#x201C; 4.5 m can be shop-fabricated and transported to the site. If tower heights exceed 35 m, fabrication in two or more parts may be necessary.

Intratec | Process & Economics Overview

Column Design Advancements

Other distillation column designs are also in development, such as the Heat-Integrated Distillation Columns (HIDiC), which, according to the researchers, are capable of reducing energy consumption by up to 50%, compared to conventional columns. One technology based on this is the SuperHIDiC, recently developed by Toyo Engineering Corp., in collaboration with the National Institute of Advanced Industrial Science and Technology (AIST).

Source: Toyo Engineering Corp.

The system divides the distillation column into two sections of rectifying and stripping, with heat exchange performed at the middle part of each section. A thermo-siphon system was adopted for recycling the mixture without using a pumping operation. A compressor is used to raise the pressure and temperature within the column, and the combination of side heat exchange and heat-pumping is said to reduce energy consumption by half.

Process Analysis Process Description & Conceptual Flow Diagram This section describes the unit for purification of RG propylene into PG propylene. Some differences may be found in comparison with similar units, since all the information presented is based on publicly available information and Intratec analysis. For a better understanding of the process, please refer to the Inside Battery Limits Conceptual Process Flow Diagram; the Main Streams Operating Conditions and Composition; and the Inside Battery Limits Major Equipment List, presented in the following pages.

Pre-Separation & Separation Steps First, the refinery grade propylene is sent to a deethanizer to reduce ethylene and ethane to less than 500 ppm mol. This step is called pre-fractionation. RG propylene from a C3-C4 splitter of a refinery will normally have 5,000 to 10,000 ppm mol ethylene/ethane and 1-2 mol% or more butylenes/butane. The ethylene/ethane stream leaving the top of the deethanizer can be used as fuel. Then, the column bottom stream is sent to a propylenepropane splitter system that consists of two columns, due to size limitations. The columns operate at pressures ranging from 18 to 20 bara.

Table 3 - Raw Materials & Consumption (per ton of Product)

The overhead of the first column still contains significant amounts of propane and, hence, must be sent to a second fractionation column. This column acts as a continuation of the first tower and generates the PG propylene products in its top. Propylene is then sent to the treatment step.

Source: Intratec â&#x20AC;&#x201C; www.intratec.us

Intratec | Process Analysis

The first column generates propane in its bottom, which can be sold as HD5 grade, the most widely sold and distributed grade of propane in the US market. The minimum propane composition of HD5 grade propane is 90 wt%. The majority of butylenes/butane from the feed is present in such a stream.

Technical Assumptions All process design and economics are based on world-class capacity units that are installed in globally competitive polypropylene plants. Assumptions regarding the thermodynamic model used in the process simulation, main improvement design basis and the raw materials composition are shown in Table 4. All data used to develop the process flow diagram is based on publicly available information.

Table 4 â&#x20AC;&#x201C; Design & Simulation Assumptions

Source: Intratec â&#x20AC;&#x201C; www.intratec.us

Intratec | Process Analysis

The assumed operating hours per year indicated does not represent any technology limitation; it is rather an assumption based on usual industrial operating rates.

Source: Intratec â&#x20AC;&#x201C; www.intratec.us

Intratec | Process Analysis

Figure 5 â&#x20AC;&#x201C; Inside Battery Limits Conceptual Process Flow Diagram

ISBL Major Equipment List Table 7 – Inside Battery Limits Major Equipment List Table 7 shows the equipment list, besides a brief description and the main materials used. For complete equipment list, including sizing, see the Chapter titled “Premium Tools: Deepen Your Analysis”, presented in this publication.

OSBL Major Equipment List Table 6 shows the list of the energy and water facilities considered in a scenario where the improvement is constructed inside a polypropylene production plant.

Intratec | Process Analysis

Table 6 – Outside Battery Limits Major Equipment List

Source: Intratec – www.intratec.us

Construction Scenarios Capital cost estimates are greatly impacted by the degree to which an industrial unit will be able to take advantage of the preexisting infrastructure. For instance, if there are nearby facilities that consume a unit’s final product or supply its feedstock, the need for storage facilities significantly decreases, along with the total fixed investment required. In the present analysis, two construction scenarios were considered:

 1st Scenario: The propylene purification unit build inside a refinery

 2nd Scenario: The propylene purification unit built inside a polypropylene plant Figure 6 presents a simplified block flow diagram of both scenarios. A “propylene purification unit” includes the equipment shown in the Inside Battery Limits Conceptual Process Flow Diagram: deethanizer, P-P splitter, and treatment equipment.

In the first construction scenario, the refinery adds value to its selling product, which will be PG propylene instead of RG propylene. In the second construction scenario in which the propylene purification unit is built inside a polypropylene plant, by changing the PG propylene to RG propylene, the manufacturers are able to purchase a less expensive raw material. The economic analysis showed in the next pages is done from the standpoint of the unit to be constructed, i.e., the propylene purification unit “buys” RG propylene and “sells” PG propylene. The gain is the difference between these values, and is earned by the plant that contains the propylene purification unit, be it either the refinery or the polypropylene plant. For this reason, investment differences rely only in the OSBL requirements of each scenario considered. Table 8 presents the assumptions regarding the utilities, support and auxiliary facilities considered for each scenario.

Source: Intratec – www.intratec.us

Intratec | Process Analysis

Figure 6 – Construction Scenarios: Sketch

Table 8 – Construction Scenarios Assumptions (Based on Degree of Integration)

Intratec | Process Analysis

Source: Intratec – www.intratec.us

Economic Analysis General Assumptions This study is restricted to an evaluation of the earnings, operating and capital expenditures associated with the improvement itself. All figures are in addition to the economics of a suitable existing plant. Such plants’ operating and capital expenditures are not in the scope of the present publication.

attributing reasonable contingencies for the investment and for evaluating the overall accuracy of estimates. Definitions and figures for both contingencies and accuracy of economic estimates can be found in this publication in the chapter “Methodology of the Analysis”.

Capital Expenditures Fixed Investment

The general assumptions for the base case of this analysis are outlined below.

Table 9 – Base Case General Assumptions Engineering & Construction Location

Table 10 shows the bare equipment and direct costs associated with ISBL and OSBL of the project. Fundamentally, the direct costs are the total direct material and labor costs associated with the equipment (including installation bulks). The total direct cost represents the total bare equipment installed cost.

Table 10 – Bare Equipment & Direct Cost per Area (USD Thousands)

Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Source: Intratec – www.intratec.us

Fixed Investment Discussion Table 11 – Total Fixed Investment Breakdown (USD Thousands)

To become more competitive and diversify their raw material supplier bases and production cost structures, some companies construct a propylene purification unit upstream from their polypropylene plants. As an example, in July 2012, Braskem, a major petrochemical player, acquired the propylene splitter assets at the Marcus Hook refinery, Pennsylvania. Validation of the total fixed investment estimated in the previous section can be made through a comparison with actual investments publicly disclosed in international press during the last few years. Investment announcements are not easily found and, many times, the assumptions adopted for each investment publicly disclosed may hinder comparisons. Based on Intratec internal data, investment are gross estimated to range from USD 50 to 100 million.

Other Capital Expenses In addition to fixed investments, improvement of a plant incurs other expenses, such as start-up costs and initial catalyst loads. During this period, other expenses include employee training, manufacturing inefficiencies and unscheduled modifications (adjustment of equipment, piping, instruments, etc.). Initial costs are not addressed in most studies on estimating but can turn into a significant total expenditure. Other capital expenses usually neglected are minor plant layout modifications for the improvement installation. Although these are small segments of the total capital expenses, they should be included. Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Indirect costs are defined by the American Association of Cost Engineers (AACE) Standard Terminology as those "costs which do not become a final part of the installation but which are required for the orderly completion of the installation".

Table 12 – Other Capital Expenses (USD Million)

Figure 7 and Figure 8 compare the total direct cost and the total fixed investment for different construction scenarios. Each differs in terms of OSBL infrastructure required.

Source: Intratec – www.intratec.us

Figure 7 – Total Direct Cost of Different Scenarios (USD Thousands)

Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Figure 8 – Total Fixed Investment of Different Scenarios (USD Thousands)

Total Capital Expenses Table 13 presents a summary of the total Capital Expenditures (CAPEX) detailed in previous sections.

Table 13 – CAPEX (USD Million)

Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Figure 9 – CAPEX per Location (USD Million)

Source: Intratec – www.intratec.us

Capital costs are adjusted from the base case (the improvement of a plant on the US Gulf Coast) to locations of interest by using location factors calculated according to the aforementioned items. For further information about location factor calculation, please examine the chapter “Methodology of the Analysis”. Figure 9 summarizes the total Capital Expenditures (CAPEX) for three locations.

Operational Expenditures Table 16 – OPEX (USD/ton)

Manufacturing Costs The manufacturing costs, also called Operational Expenditures (OPEX), are composed of two elements: a fixed cost and a variable cost. OPEX figures presented regard exclusively the operation of the improvement under analysis. Table 14 shows the manufacturing fixed cost.

Source: Intratec – www.intratec.us

Table 14 – Manufacturing Fixed Cost (USD/ton)

Source: Intratec – www.intratec.us

Table 15 – Manufacturing Variable Cost (USD/ton)

Table 17 – Depreciation Value & Assumptions

Source: Intratec – www.intratec.us

Regional Comparison An OPEX breakdown structure for three different locations is presented in Figure 11.

Intratec | Economic Analysis

Source: Intratec – www.intratec.us

Figure 10 – OPEX and Polymer Grade Propylene Price History (USD/ton PG Propylene)

Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Figure 11 – Operating Costs Breakdown per Location (USD/ton)

Source: Intratec – www.intratec.us

Economic Datasheet & Discussion

Figure 12 – IRR vs. RG Propylene Purity (US Gulf)

This section assesses the economic attractiveness of an improvement opportunity. Operational costs are only one of the items to be considered when analyzing a project’s feasibility. It is also necessary to determine if operational gains are high enough to justify the capital investment. On that matter, an indicator such as internal rate of return (IRR) is needed to predict the profitability of an improvement under consideration. China presented the lowest CAPEX, with USD 53 million, followed by USA and Germany, with USD 67 and 80 million, respectively. Considering these investments, an IRR of more than 30% is expected for a unit installed on the US Gulf and more than 35% for a unit on China. Source: Intratec – www.intratec.us

The analysis in Figure 12 is only valid for a typical RG propylene purity, i.e., with a propylene content ranging of 55% to 75%. Outside this range, the price assumptions are different, and could lead to misleading results. The difference between RG and PG propylene prices plays a significant role in the economic feasibility of the improvement it is also vital to consider the sale of the propane. OPEX in USA is evaluated at about USD 1,388 per ton of PG propylene, approximately 5% below those verified for Germany and 10% above those for China. In Germany, the elevated investment and utility costs make the building of this improvement infeasible.

The Technology Economic Datasheet (Table 19) is an overall evaluation of the technology's production costs in US Gulf Coast-based plant. To extend your analysis of the propylene purification unit presented in this report, check our available tools presented in the final chapters of this report:

 Premium Tools: Deepen Your Analysis  Economic Data Bank: Free Economic Updates

Economic Assumptions Fixed costs are estimated based on the specific characteristics of the improvement. Table 18 shows the industrial labor requirements for the improvement operation. Other fixed costs, such as operating charges, are also shown.

Table 18 – Fixed Cost Assumptions

Source: Intratec – www.intratec.us

Intratec | Economic Analysis

Depending on the content of propylene in the RG propylene to be purified, different internal rates of return are achieved. Low propylene contents in the RG propylene feed implies in larger columns, which raises the investment. Figure 12 shows a rough sensitivity analysis of the IRR for different RG propylene purities for the improvement build inside a 400 kta polypropylene plant.

Intratec | Economic Analysis 25

The RG propylene price considers a composition of 70 wt.% of propylene, and includes the price contribution of the propane.

References American Chemistry Council, 2007. s.l.:s.n. Anon., n.d. [Online] Available at: http://www.propane101.com/propanegradesandquality.ht m [Accessed 17 September 2012]. Arons, J. d. S., van der Kooi, H. & Sankaranarayanan, K., 2004. Separations. In: s.l.:Marcel Dekker, Inc.. Braskem S.A., 2012.

s.l.:s.n.

(n.d.) Koch-Glitsch. Davison Catalagram, 2004. s.l.:s.n. Eisele, P. & Killpack, R., 2002. Propene Section. In: s.l.:Wiley-Interscience. KLM Technology Group, 2012. s.l.: s.n. Malik, Z. I. & Slack, J. W., n.d. Tulsa, Oklahoma: Linde Process Plants, Inc.. Olujic, Z., Sun, L., Rijke, A. d. & Jansens, P. J., 2006.

Palmer, E. et al., Q2 2012. High-Purity Propylene from , pp. 55-65. Refinery LPG.

Intratec | References

Rhinesmith, R. B., Archer, P. J. & Watson, S. J., 2001. Bailey, Colorado: Pearl Development Co..

Romero, K., 2012. Optimize Olefin Operations. , April.

(n.d.) Sulzer Chemtech.

Acronyms, Legends & Observations AACE: American Association of Cost Engineers

NGL: Natural gas liquids

AIST: National Institute of Advanced Industrial Science and Technology

OPEX: Operational Expenditures OSBL: Outside battery limits

C: Distillation, stripper, scrubber columns (e.g., C-101 would denote a column tag) C2, C3, ... Cn: Hydrocarbons with "n" number of carbon atoms

P: Pumps (e.g., P-101 would denote a pump tag) PG: Polymer grade PP: Polypropylene

C2=, C3=, ... Cn=: Alkenes with "n" number of carbon atoms P-P: Propylene-propane CAPEX: Capital Expenditures R: Reactors, treaters (e.g., R-101 would denote a reactor tag) CC: Distillation column condenser CP: Distillation column reflux pump

RF: Refrigerant (Flowsheet) or Refrigeration Unit (e.g., RF801 would denote an equipment tag)

CR: Distillation column reboiler

RG: Refinery grade

CW: Cooling water

SB: Steam boiler (e.g., SB-801 would denote an equipment tag)

E: Heat exchangers, heaters, coolers, condensers, reboilers (e.g., E-101 would denote a heat exchanger tag) EBITDA: Earnings before Interests, Taxes, Depreciation and Amortization

ST: Steam T: Tanks (e.g., T-101 would denote a tank tag) TFI: Total Fixed Investment

F: Furnaces, fired heaters (e.g., F-101 would denote a furnace tag) FCC: Fluid-catalytic cracking

TPC: Total process cost V: Horizontal or vertical drums, vessels (e.g., V-101 would denote a vessel tag)

IC Index: Intratec Chemical Plant Construction Index

WD: Demineralized water (Flowsheet) or Demineralizer (e.g., WD-801 would denote an equipment tag)

IRR: Internal rate of return

WP: Process water

ISBL: Inside battery limits

X: Special equipment (e.g., X-101 would denote a special equipment tag)

K: Compressors, blowers, fans (e.g., K-101 would denote a compressor tag) kta: thousands metric tons per year LPG: Liquefied petroleum gas

Obs.: 1 ton = 1 metric ton = 1,000 kg

Intratec | Acronyms, Legends & Observations

HIDiC: Heat-Integrated Distillation Columns

Methodology of the Analysis General Approach Improvement Economicsâ&#x20AC;&#x2122;s approach ensures a holistic, coherent and consistent techno-economic evaluation, which carries a clear understanding of a specific improvement opportunity. Although each improvement carries its own degree of complexity and range of implementation possibilities, the methodology hereby presented aims to briefly describe the factors that may be considered during the technology evaluation. The general methodology used in the development of the Improvement Economics publications is depicted in Figure 13. The first step is an evaluation of the global chemical industry, in order to identify improvement opportunities trends in areas of interest to the chemical and allied industries. At the end of the initial research the scope of the present study is defined.

Intratec | Methodology of the Analysis

Subsequently, Intratec team simultaneously develops the technology description and the process flow diagram based on: (a) patent and technical literature; (b) non-confidential information provided by vendors or technology licensors; and (c) Intratec's in-house database and process design skills. Next, all the data collected is used to build a rigorous steady state process simulation model in Aspen Hysys and/or Aspen Plus, leading commercial process flow sheeting software tools.

From this simulation, material balance calculations are performed around the process, key process indicators are identified and main equipment listed. Equipment sizing specifications are defined based on (a) Intratec's equipment design capabilities; and (b) extensive use of AspenONE Engineering Software Suite that enables the integration between the process simulation developed and equipment design tools. Both equipment sizing and process design are prepared in conformance with generally accepted engineering standards. The next step is to gather pricing data encompassing raw materials, chemicals and products, followed by a cost analysis targeting fixed capital costs, manufacturing costs, and other expenses associated with the examined technology. Equipment costs are primarily estimated from Aspen Process Economic Analyzer customized models and

occasionally, vendor quotes of unique and specialized equipment may also be employed. Aspen Process Economic Analyzer, formerly Aspen Icarus, is a powerful project scoping tool that enables our personnel to promptly evaluate the economic impact of their process designs. Simplified estimation methods require no design work, while others require process design to account for the major equipment items, estimating the costs of these items, and applying factors for field costs. Intratec's methodology is based on the latter type. One of the overall objectives is to establish Class 3 cost estimates2 with minimum design engineering effort. Finally, capital and operating costs are assembled in Microsoft Excel spreadsheets, and an economic analysis of such technology is performed in which different construction locations are considered. The improvement is also analyzed under the optic of specific economic parameters, aiming to assist decision-makers with meaningful appraisals.

Assumptions General Considerations The cost estimate presented in the current report is for a technology based on a standardized design practice, typical of a major chemical company. The specific design standards employed can have a significant impact on capital costs. The basis for the capital cost estimate is that the improvement is implemented in a plant that follows typical design practices described by technology licensors or in the literature. In comparing the cost estimate hereby presented with an actual system's costs or contractor's estimate, the following observations must be considered:

ď&#x20AC; Minor differences or details (many times unnoticed) between similar processes can appreciably affect cost.

These are estimates that form the basis for budget authorization, appropriation, and/or funding. Accuracy ranges for this class of estimates are + 10% to + 30% on the high side, and - 10 % to - 20 % on the low side.

Source: Intratec â&#x20AC;&#x201C; www.intratec.us

Intratec | Methodology of the Analysis

Figure 13 â&#x20AC;&#x201C; Methodology Flowchart

 Similar manufacturing processes may present significant differences in some specific sections. Such differences may limit the suitability of the improvement under analysis.

In addition to the direct material and labor costs, indirect costs, such as construction overheads, including: payroll burdens, field supervision, equipment rentals, tools, field office expenses, temporary facilities, among others may also be addressed.

 Industrial plants may be overdesigned for particular objectives and situations.

 Rapid fluctuation of equipment or construction costs may invalidate cost estimate.

 Equipment vendors or engineering companies may provide goods or services below profit margins during economic downturns.

 Specific locations may impose higher taxes and fees, which can impact costs considerably. In addition, no matter how much time and effort are devoted to accurately estimating costs, errors may occur due to the aforementioned factors, as well as cost and labor changes, construction problems, weather-related issues, strikes, or other unforeseen situations. This is partially considered in the project contingency. Finally, it must always be remembered that an estimated project cost is not an exact number; rather, it is an appraisal of the probable cost.

Fixed Investment Investment includes the fixed capital cost of the main processing units necessary to accomplish improvement’s goals. It may include the installed cost of the following items:

 Process equipment (e.g., reactors and vessels, heat exchangers, pumps, compressors, etc.)

 Process equipment spares

Intratec | Methodology of the Analysis

 Housing for process units

 Pipes and supports within the main process units  Instruments, control systems, electrical wires and other hardware

 Foundations, structures and platforms  Insulation, paint and corrosion protection

Start-up Expenses There are certain one-time expenses related to bringing a process or a plant modification on stream. From a time standpoint, a variable undefined period exists between the nominal end of construction and the production of quality product in the quantity required. This period is loosely referred to as start-up. In this period, expenses are incurred for operator and maintenance employee training, temporary construction, auxiliary services, testing and adjustment of equipment, piping, and instruments, etc. Our method of estimating start-up expenses consists of four components:

 Labor component. Represents costs associated with plant crew training for start-up, estimated as a certain number of days of total labor costs associated with the improvement (operators, supervisors, maintenance personnel and laboratory labor).

 Commercialization cost. Depends on raw materials and products negotiation, on how integrated the plant is with feedstock suppliers and consumer facilities, and on the maturity of the technology. It ranges from 0.5% to 5% of annual manufacturing expenses.

 Start-up inefficiency. Takes into account those operating runs when production cannot be maintained or false starts. The start-up inefficiency varies according to the process maturity: 5% for new and unproven processes, 2% for new and proven processes, and 1% for existing licensed processes, based on annual manufacturing expenses.

 Unscheduled system adjustments. A key fault that can happen during the start-up of the new system is the risk that the product(s) may not meet specifications required. As a result, equipment modifications or additions may be necessary.

Other Capital Expenses  Prepaid Royalties. Royalty charges on portions of the plant are usually levied for proprietary processes. A value ranging from 0.5 to 1% of the total fixed investment (TFI) is generally used.

 Plant Layout Modifications. Plant preparation, including any modifications required in the existing unit to make space for the new equipment acquired.

Manufacturing Costs Manufacturing costs do not include post-plant costs, which are very company-specific. These consist of sales, general and administrative expenses, packaging, research and development costs, and shipping, etc. Operating labor and maintenance requirements have been estimated subjectively on the basis of the number of major equipment items and similar processes, as noted in the literature.

Contingencies & Accuracy of Economic Estimates

Table 20 – Project Contingency

Source: Intratec – www.intratec.us

Contingency constitutes an addition to capital cost estimations, implemented based on previously available data or experience to encompass uncertainties that may incur, to some degree, cost increases. According to recommended practice, two kinds of contingencies are assumed and applied to TPC: process contingency and project contingency.

Finally, the accuracy of estimates gives the realized range of plant cost. For this reason, the ability to compare the process with others (reflected in the phase of estimates) and the reliability of the technical information available is of major importance. The non-uniform spread of accuracy ranges (+50 to – 30 %, rather than ±40%, e.g.) are justified by the fact that the unavailability of complete technical information usually results in under-estimating instead of over-estimating the project costs.

Process contingency is utilized in an effort to surpass the absence of technical information or the uncertainty of those possessed. In that manner, the reliability of the information gathered, its amount and the inherent complexity of the technology are decisive for its evaluation. Errors that occur may be related to:

Table 21 – Accuracy of Economic Estimates

 Uncertainty in process parameters, such as severity of operating conditions and quantity of recycles

 Addition and integration of new process steps  Estimation of costs through scaling factors  Off-the-shelf equipment

Source: Intratec – www.intratec.us

Intratec | Methodology of the Analysis

Plant overhead includes all other non-maintenance (labor and materials) and non-operating site labor costs for services associated with the manufacture of the product. Such overheads do not include costs to develop or market the product and are dependent on the improvement proposed. Systems relatively simple in comparison to the plants in which they are implemented do not represent an addition to plant overhead costs.

Intratec’s definitions in relation to complexity, maturity and project cost estimation phase are the following:

a US Gulf Coast-based plant as the reference location. The final Location Factor is determined by four major indexes: Business Environment, Infrastructure, Labor, and Material.

Table 22 – Criteria Description

The Business Environment Factor and the Infrastructure Factor measure how easy it is for a new plant to be installed in different countries, taking into consideration the readiness of bureaucratic procedures, and the availability and quality of ports or roads, for example. Labor and material, in turn, are the fundamental components for the construction of a plant and, for this reason, are intrinsically related to the plant costs. This concept is the basis for Intratec’s Location Factor methodology, which aims to represent the local discrepancies in labor and material. Productivity of workers and their hourly compensation are important for the project but, also, the qualification of workers is decisive to estimate the need for foreign labor.

Source: Intratec – www.intratec.us

Intratec | Methodology of the Analysis

Location Factor

A location factor is an instantaneous, total cost factor used for converting a base project cost from one geographic location to another. As such, a properly estimated location factor is a powerful tool both for comparing available investment data and evaluating which region may provide greater economic attractiveness for a new industrial venture. Considering this, Intratec has developed a rigorous and reliable methodology for calculating Location Factors, and the results are presented for specific regions’ capital costs comparison. Intratec’s Location Factor takes into consideration the differences in productivity, labor costs, local steel prices, equipment imports needs, freight, taxes and duties on imported and domestic materials, regional business environments and local availability of sparing equipment. For such analysis, all data were taken from international statistical organizations and from Intratec’s database. Calculations are performed in a comparative manner, taking

On the other hand, local steel prices are similarly important, since it is largely representative of the costs of structures, piping, equipment, etc. Considering the contribution of labor in these components, workers’ qualifications are also indicative of the amount that needs to be imported. For both domestic and imported materials, a Spare Factor is considered, aiming to represent the need for spare rotors, seals and parts of rotating equipment. The sum of the corrected TFI distribution reflects the relative cost of the plant, and this sum is multiplied by the Infrastructure and the Business Environment Factors, yielding the Location Factor. For the purpose of illustrating the conducted methodology, a block flow diagram is presented in Figure 14, in which the four major indexes are presented, along with some of their components.

Figure 14 â&#x20AC;&#x201C; Location Factor Composition

Intratec | Methodology of the Analysis

Source: Intratec â&#x20AC;&#x201C; www.intratec.us

BACK COVER

Improvement Economics Standardized advisory services developed by Intratec under its Consulting as Publications pioneer approach. Improvement Economics projects present unbiased analyses of technical solutions and their economics, answering: - What is the most likely process design of this technology? - How the plant operates after the implementation? What are the changes in the key process indicators? - How is the capital and operating costs breakdown? - What is the value creation potential of the project?