8.1.

1 Equipment cost

All equipment that are involved for production of Methanol are considered to be further
analysed as equipment costing is one of the most crucial investment needed to b calculated.
Thus, the evaluation for profit and payback rate can be performed in the future. The
calculation of equipment cost is based on R.K. Sinott, 2005 and A.M. Gerrard, 2007.

a) Pump

Assume the power of centrifugal pump used is 5 kW, as there are no exact estimations done
for pump. Price of centrifugal pump can be obtained by referring to curve cost of large
centrifugal pump [ CITATION Ger07 \l 17417 ].

Cost =£ 8,000

RM 5.42
Equipment Cost =£ 8,000 ×
£1

Equipment Cost =RM 43,360

301(Cost Index 2020)

Purchase Cost=RM 43,360 ×
100(Cost Index 2000)

Purchase Cost=RM 130,513.60

b) Heat Exchanger

The cost for heat exchanger will be obtained by using the Heat Transfer Surface
Area of each Heat Exchanger unit. Cost curves as shown in Figure 1 will be used in cost
determination. Cost of each unit will be determined based materials used as shown in
Figure 3 [ CITATION Sin051 \l 17417 ].

E-101

Heat Transfer Surface Area=416.7598 m2 ;

Material of Construction=Stainless Steel ;

By referring to Figure 1, the cost of E-101 in year of 2004 is $300,000. This value is
obtained by referring to fourth curve as material used for both shell and tube is stainless
steel. The cost of equipment obtained is $300,000, which is equivalent to RM 1,239,000. By
using cost of inflation index of year 2004 and 2020, the cost of heat exchanger in 2020 is RM
3,300,345.13. The inflation index is as shown in Figure 2.
 RM 4.13
$ 300,000× =RM 1,239,000
$1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 1,239,000 ×
113

Price=RM 3,300,345.13

Figure 1: Shell and Tube Heat Exchanger cost in 2004[ CITATION Sin051 \l 17417 ].

Figure 2: Cost Inflation Index by years.

 Other than type of materials used is taken into consideration, the pressure factors
and type factors used also will affect the price of the equipment. The purchase required is as
shown in Figure 3 as E-101 operates at 1400kPa, which is equivalent to 14 bar. Hence,
range between 10 and 20 bar will be used. the purchased cost is as shown below. The same
calculation and estimation method are repeated for E-102 and E-106.

Figure 3: Consideration Factors in Shell and Tube Heat Exchanger[ CITATION Sin051 \l 17417 ].

Purchased Cost =( Cost ¿curve ) ×Type Factors× Pressure Factors

¿ RM 3,300,345.13 ×0.85 ×1.1

¿ RM 3,085,822.70

E-102

Heat Transfer Surface Area=88.07 m2 ;

Material of Construction=Stainless Steel ;

Cost ¿ Curve=$ 120,000

RM 4.13
$ 120,000× =RM 495,600
$1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 495,600×
113

Price=RM 1,320,138.05

Purchased Cost =( Cost ¿curve ) ×Type Factors× Pressure Factors

 ¿ RM 1,320,138.05 ×0.85 ×1.0

¿ RM 1,122,117.35

E-106

Heat Transfer Surface Area=78.9336 m 2 ;

Material of Construction=Stainless Steel ;

Cost ¿ Curve=$ 100,000

RM 4.13
$ 100,000× =RM 413,000
$1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 413,000×
113

Price=RM 1,100,115.04

Purchased Cost =( Cost ¿curve ) ×Type Factors× Pressure Factors

¿ RM 1,100,115.04 × 0.85 ×1.0

¿ RM 935,097.79

c) Compressor, C-101

kJ
Q=194025.339
min

kJ 0.01667 kW
Q=194025.339 ×
min 1 kJ /min

Q=3234.4024 kW
 The cost for compressor, C-101, can be determined by referring to Figure
7.19[ CITATION Ger07 \l 17417 ]. The cost obtained for the equipment is £1,900,000, which
equivalent to RM 10,298,000. This price was then employed with cost inflation index as
obtained equipment cost is based on January 2000.

RM 5.42
Equipment Cost =£ 1,900,000×
£1

Equipment Cost =RM 10,298,000

301(Cost Index 2020)

Purchase Cost=RM 10,298,000 ×
100(Cost Index 2000)

Purchase Cost=RM 30,996,980

d) Reformer

For calculating the cost of reformer, Figure 7.4 from A.M. Gerrard are seen to be unsuitable
to be used to estimate price of reformer. The curve required reformer’s diameter be used but
diameter of 4.12 m located out of curve provided. Hence, Equation 1 will be used to
calculate cost based on value from Figure provided below, where volume of reformer tank
will be used as reference.

Ce=CSn

Ce=CSn

Ce=£ 9,300 ×(40.03 m3 )0.40

Ce=£ 40,685.27

RM 5.42
£ 40,685.27 × =RM 220,514.16
£1
 Cost Index 2020
Price=Price 2004 ×
Cost Index 2004

301
Price=RM 220,514.16 ×
113

Price=RM 587,387.28

e) Reactor

For calculating the cost of reactor, Figure 7.4 from A.M. Gerrard are seen to be unsuitable to
be used to estimate price of reactor. The curve required reactor’s diameter be used but
diameter of 4.95m located out of curve provided. Hence, Equation 1 will be used to calculate
cost based on value from Figure provided below, where volume of reactor tank will be used
as reference.

Ce=CSn

Ce=CSn

Ce=£ 9,300 ×(57.73 m 3 )0.40

Ce=£ 47,102.46

RM 5.42
£ 47,102.46 × =RM 255,295.33
£1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 255,295.33 ×
113

Price=RM 680,034.46
 f) Condenser

E-103

Heat Transfer Surface Area=22.07 m2 ;

Material of Construction=Stainless Steel ;

Cost ¿ Curve=$ 38,000

RM 4.13
$ 38,000× =RM 156,940
$1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 156,940 ×
113

Price=RM 418,043.72

Purchased Cost =( Cost ¿curve ) ×Type Factors× Pressure Factors

¿ RM 418,043.72 ×0.85 ×1.1

¿ RM 390,870.88

E-104

Heat Transfer Surface Area=133.1204 m2 ;

Material of Construction=Stainless Steel ;

Cost ¿ Curve=$ 150,000

RM 4.13
$ 150,000× =RM 619,500
$1
 Cost Index 2020
Price=Price 2004 ×
Cost Index 2004

301
Price=RM 619,500 ×
113

Price=RM 1,650,172.57

Purchased Cost =( Cost ¿curve ) ×Type Factors× Pressure Factors

¿ RM 1,650,172.57 ×0.85 ×1.1

¿ RM 1,542,911.35

g) Distillation Column

Determining the cost of distillation column will require two parts of calculation, which is the
vessel cost and column cost. Vessel cost will be determined by using length or height of
vessel (7.0 m) and diameter of vessel (3.07 m). The value for vessel cost can be determined
by referring to curve below using fourth curve as diameter is 3.0 m.

Cost =£ 20,000
 RM 5.42
Equipment Cost =£ 20,000×
£1

Equipment Cost =RM 108,400

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 108,400 ×
113

Price=RM 288,746.90

Purchased Cost =( Cost ¿curve ) × Material Factors× Pressure Factors

¿ RM 288,746.90 ×2.0 ×1.1

¿ RM 635,243.18

As for column cost, Figure 7.12 from A.M. Gerrard (2007) will be referred as sieve tray will
be used for distillation column. Cost of £20,000 was obtained at diameter of 3.0 m, and will
be multiplied with 1.35 for stainless steel and 0.6 power law for plates exceeding 10.

Cost =£ 20,000

Purchase Price=(£ 20,000 ×1.35)(14)0.6

Purchase Price=£ 131,534.77

RM 5.42
Equipment Cost =£ 131,534.77×
£1

Equipment Cost =RM 712,918.48

Cost Index 2020

Price=Price 2004 ×
Cost Index 2000

301
Price=RM 712,918.48 ×
100
 Price=RM 2,145,884.63

Total purchase Price=RM 635,243.18+ RM 2,145,884.63

Total purchase Price=RM 2,781,127.81

h) Storage Tanks

There are three storage tanks, important for the plant, which is the methane tank, inlet water
tank and methanol storage tanks after production. The assumptions for the storage tank
calculation is the storage is a cone roof type and are each 1000 m3 each tank. Figure below
shows the purchase cost for tanks, alongside the cost constant and index for that particular
type of equipment [ CITATION Sin051 \l 17417 ].

Calculation will be done by using the equation below. By referring to the Figure above, the
value of C is $2300, S is 1000 m3 and n is 0.55, and purchased cost (Ce) will be obtained.

Ce=CSn

Ce=£ 1,400×(1000 m3)0.55

Ce=£ 62,535.70

RM 5.42
£ 62,535.70 × =RM 338,943.49
£1

Cost Index 2020

Price=Price 2004 ×
Cost Index 2004

301
Price=RM 338,943.49 ×
113

Price=RM 902,849.47

The price obtained for storage tank is RM 902,849.47 each. However, the price should be
multiplied by 2 as the material used for storage tank is stainless steel.

Price=RM 902,849.47× 2

Price=RM 1,805,698.94
8.1.2 Purchase Cost Estimation (PCE)

Current Price No. of

Equipment Net Price
(2020) Units
Pump RM 130,513.60 8 RM 1,044,348.80
Heat Exchanger, E-101 RM 3,085,822.70 1 RM 3,085,822.70
Heat Exchanger, E-102 RM 1,122,117.35 1 RM 1,122,117.35
Heat Exchanger, E-106 RM 935,097.79 1 RM 935,097.79
Compressor, C-101 RM 30,996,980 1 RM 30,996,980
Reformer, RF-101 RM 587,387.28 1 RM 587,387.28
Reactor, R-101 RM 680,034.46 1 RM 680,034.46
Condenser, E-103 RM 390,870.88 1 RM 390,870.88
Condenser, E-104 RM 1,542,911.35 1 RM 1,542,911.35
Distillation Column, DC-101 RM 2,781,127.81 1 RM 2,781,127.81
Storage Tanks RM 1,805,698.94 3 RM 5,417,096.82
Total purchase cost of Equipment RM 48,583,555.24

8.1.3 Physical Plant Cost (PPC)

PPC=PCE (1+ f 1+ f 2 + f 3+ f 4 + f 5 + f 6 +f 7+ f 8 + f 9 )

Process Type
Item
Fluid
Major Equipment, total purchase cost PCE
F1 : Equipment Erection 0.4
F2 : Piping 0.70
F3 : Instrumentation 0.20
F4 : Electrical 0.10
F5 : Buildings, process Not Applicable
F6 : Utilities Not Applicable
F7 : Storages Included in PCE
F8 : Site Development Not Applicable
F9 : Ancillary Buildings Not Applicable
RM 48,583,555.24 (1+0.4+ 0.7+0.2+0.1 ¿
Total Physical Plant Cost (PPC)
=RM 116,600,532.60

8.1.4 Fixed Capital Cost (FCI)

FCI=PPC (1+ f 10 +f 11 +f 12 )

Process Type
Item
Fluid
Physical Plant Cost PPC
F10 : Design and Engineering 0.30
F11 : Contractor’s Fee 0.05
F12 : Contingency 0.10
RM 116,600,532.60 (1+0.30+0.05+0.10)
Fixed Capital Cost (FCI)
=RM 169,070,772.30
8.1.5 Working Capital

Working Capital, also known as Working Capital Investment, is 15% out of Fixed
Capital Cost (FCI).

15
Working Capital= × RM 169,070,772.30
100

Working Capital=RM 25,360,615.85

8.1.6 Total Investment

Total investment is the sum of value of Fixed Capital cost and Working Capital. The purpose
of estimating this value is to assess the profitability for the production of Methanol.

Total Investment =¿ Capital Cost +WorkingCapital

Total Investment =RM 169,070,772.30+ RM 25,360,615.85

Total Investment =RM 194,431,388.10

8.2 PRODUCTION COST

8.2.1 Variable Cost

a) Raw Materials

The raw materials that will be used for the plant is Methane and water. Calculation of
catalyst used (ZnO) in Reformer, RF-101 will also be included.

Methane, CH4

RM 0.25
Methane=
kg

mol 16.04 g 1 kg 60 min kg

Mass Flowrate=9753.433 × × × =9386.7039
min mol 1000 g 1 hr hr

0.20 kg 24 hr 350 day

RM × 9386.7039 × × =RM 19,712,078.23
kg hr 1 day 1 year

Raw Material Methane

Price per kg (RM) RM 0.25
Mass Flowrate (mol/min) 9753.433
Mass Flowrate (kg/hr) 9386.7039
Total price per annual (RM) RM 19,712,078.23

Water, H2O

Values

Industrial (Non-Domestic) Water rates

Water used = 21,851.742 mol/min 0-227 m3 RM 0.92/m3

>227m3 RM 0.84/m3

mol g 1 kg
Water used=21851.742 × 18.015 ×
min mol 1000 g

kg 60 min 24 hr 30 days
Water used=393.659 × × ×
min 1 hr 1day 1 month

kg 1m 3
Water used=17,006,068.8 ×
month 1000 kg

m3
Water used=17,006.0688
month
 Industrial Water Rates Water Used (m3) Rate Calculated
RM 0.92
3 3
×227 m 3
0-227 m = RM 0.92/m 0-227 m 3

=RM 208.84
RM 0.84
×16779.0688 m3
>227m3 = RM 0.84/m3 227-17,006.0688 m 3

=RM 14,094.42
Total Rate per month RM 14,303.26

RM 14,303.26 12 months
Rate per year= ×
month 1 year

Rate per year=RM 171,639.12

Catalyst, ZnO

Estimated Lifespan=10 years

$ 57.70 RM 4.13 RM 238.301

Price= × =
500 g $1 0.5 kg

Catalyst used for Reformer , RF−101=24,510.3309 kg

RM 238.301
Final Price of Catalyst = × 24,510.3309 kg
0.5 kg

RM 11,681,672.73
Final Price of Catalyst =
10 years

Final Price of Catalyst =RM 1,168,167.27/ year

b) Utilities

Steam (Utility) Calculation

Estimated usage of steam = 600,000 kg/month
Cost of Steam (2008) = RM 0.30/kg
RM 0.30 600,000 kg 12 month
× × =RM 2,160,000
kg month 1 year

Cooling Water (Utility) Calculation

Estimated usage of Cooling water = 400,000 kg/hr
Cost of Cooling water (2020) = RM 0.48/tonne
 400,000 kg 1tonne RM 0.48 8400 hours
× × × =RM 1,612,800
hr 1000 kg tonne 1 year

Electricity (Utility) Calculation

Estimated Electrical Consumption = 180 kWh/day
Electrical Tariff (based on type of industry) = RM 35.50/kWh
RM 35.50 180 kWh 350 days
× × =RM 2,236,500
kWh 1 day 1 year

Total Utilities=RM 2,160,000+ RM 1,612,800+ RM 2,236,500

Total Utilities=RM 6,009,300

c) Other Related Cost

Miscellaneous Cost
Miscellaneous = 10% of maintenance cost
10
× RM 8,453,538.61=RM 845,353.86
100
8.2.2 Fixed Cost

Aspect Criteria Cost

5
× RM 169,070,772.24
a) Maintenance 5% of Fixed Capital Cost 100
= RM 8,453,538.61

RM 68 k
Manning Estimates (RM68k per ×150
b) Operating labour year . person
year per person X 150 employees)
= RM 10,200,000.00
20
× RM 10,200,000
c) Supervision 20% of Operating Labour (b) 100
= RM 2,040,000.00
50
× RM 10,200,000
d) Plant Overheads 50% of Operating Labour (b) 100
= RM 5,100,000.00

15
× RM 169,070,772.24
e) Capital Charges 15% of Fixed Capital Cost 100
= RM 25,360,615.84

1
× RM 169,070,772.24
f) Insurances 1% of Fixed Capital Cost 100
= RM 1,690,707.72

2
× RM 169,070,772.24
g) Rates 2% of Fixed Capital Cost 100
= RM 3,381,415.44

1
× RM 169,070,772.24
h) Royalties 1% of Fixed Capital Cost 100
= RM 1,690,707.72

30
× RM 85,823,523.82
i) Sales Expenses 30% of Direct Production Cost 100
RM 25,747,057.15

20
j) General × RM 85,823,523.82
20% of Direct Production Cost 100
Overheads
RM 17,164,704.76

25
k) Research and × RM 85,823,523.82
25% of Direct Production Cost 100
Development
RM 21,455,880.95

Direct Production Cost = Sub Total A + Sub Total B

 Sub Total A = Raw Materials + Utilities + Miscellaneous;

Sub Total B = Maintenance + Operating + Overheads + Capital Charges + Insurances

8.2.3 Annual Production Cost

Variable Cost Typical Values (MYR)

Raw Materials RM 21,051,884.62

Utilities RM 6,009,300.00

Miscellaneous Materials RM 845,353.86

Shipping & Packaging Not Applicable

Sub Total A RM 27,906,538.48

Fixed Cost Typical Values (MYR)

Maintenance RM 8,453,538.61

Operating Labour RM 10,200,000.00

Supervision RM 2,040,000.00

Plant Overheads RM 5,100,000.00

Capital Charges RM 25,360,615.84

Rates RM 3,381,415.44

Insurance RM 1,690,707.72

Royalties & License Fees RM 1,690,707.72

Sub Total B RM 57,916,985.34

Direct Production Costs (A+B) RM 85,823,523.82

Sales Expense RM 25,747,057.15

General Overheads RM 17,164,704.76

Research & Development RM 21,455,880.95

Sub Total C RM 64,367,642.86

Annual Production Cost (A+B+C) RM 150,191,166.68

8.3 Economic Analysis

8.3.1 Cash Flow Diagram

Total Investment Cost : RM 194,431,388.07. The estimated total investment cost

required is approximately MYR 194 million and will be the timing of the investment

Design Cost
Year 1: RM 17,498,824.93
9% of Total Investment
Construction Cost
Year 2 : RM 77,772,555.23
40% of Total Investment
Construction Cost + Working Capital
Year 3 : RM 99,160,007.92
51% of Total Investment
Table 3.1: Explanations of project cash-flow diagram ([ CITATION Sin051 \l 17417 ].
Point Explanation / Details
A-B Point represent the investment required to design the plant.
Timeline showing the heavy flow of capital to start building the plant and
B-C
providing funds for start-up phase.
The curve can be seen to rises at this point, as product was produced,
and income will be obtained from sales. At this timeline, the cumulative
C-D
net cash flow can be seen to remain negative until investments were paid-
off (Point D), while net cash flow is positive.
This timeline is called as ‘payback time’, which represents the time to
A-D reach ‘break-even point’. Curve shows that, it took four years to start
gaining return and paying off investments.
This point is known as ‘break-even point’. It can be used to quantify the
D percentage of plant capacity at which the income of the plant equals to the
production cost.
Regions shows positive numbers for cumulative cash flow, indicating a
D-E
return from the investment.
Due to the increment in operating costs and falling sale in terms of volume
E-F
and price, cash flow tends to fall off, and slope of curves will change.
Point indicate the final cumulative net cash flow by the end of the project
F
life.
 CASH IN
Current Methanol Price = $210/MT [Asia Pacific price, Valid till 30th Nov 2020]
Current Methanol Price = RM 1.28/kg
Sales Price = RM 1.50/kg
For the first three years, no sales income counted as plant is in phase of start-up. Due to
reducing the payback time, sales price will be increased to RM 2.50/kg for year 4, and RM
3.10/kg for year 5. The price used will back to RM 2.50/kg for the proceeding years.
 Year 4 and Year 6 onwards = RM 2.50/kg x 175,000,000 kg/year = RM 437,500,000
 Year 5 = RM 3.10/kg x 175,000,000 kg/year = RM 542,500,000
 Year 9 (less production due to major maintenance) = RM 2.50/kg X 125,000,000
kg/year =RM 312,500,000
Total Investment = RM 194,431,388.07
Interest is 10% of Total Investment and will stay the same throughout the years.
10
× RM 194,431,388.07=RM 19,443,138.81
100
CASH OUT
Investment :
Year 1 = RM 17,498,824.93
Year 2 = RM 77,772,555.23
Year 3 = RM 99,160,007.92
Raw Materials :
Methane = RM 19,712,078.23
Water = RM 171,639.12
Catalyst = RM 1,168,167.27
Total Raw Materials = RM 21,051,884.62
Fixed Cost = Sub Total B = RM 57,916,985.34
Variable Cost = Sub Total A = RM 27,906,538.48
 Year 1 2 3 4 5 6 7 8 9
CASH IN (RM)
Sale Income - - - 4.38E+08 5.43E+08 4.38E+08 4.38E+08 4.38E+08 3.13E+08
Interest (10%
of Total 1.94E+07 1.94E+07 1.94E+07 1.94E+07 1.94E+07 1.94E+07 1.94E+07 1.94E+07 1.94E+07
Investment)
Total IN 1.94E+07 1.94E+07 1.94E+07 4.57E+08 5.62E+08 4.57E+08 4.57E+08 4.57E+08 3.32E+08
CASH OUT (RM)
Investment 1.75E+07 7.78E+07 9.92E+07 - - - - - -

Raw Materials 2.11E+07 2.11E+07 2.11E+07 2.11E+07 2.11E+07 2.11E+07 2.11E+07 2.11E+07 2.11E+07

Fixed Cost 5.79E+07 5.79E+07 5.79E+07 5.79E+07 5.79E+07 5.79E+07 5.79E+07 5.79E+07 5.79E+07
Variable Cost 2.79E+07 2.79E+07 2.79E+07 2.79E+07 2.79E+07 2.79E+07 2.79E+07 2.79E+07 2.79E+07
Total OUT 1.24E+08 1.85E+08 2.06E+08 1.07E+08 1.07E+08 1.07E+08 1.07E+08 1.07E+08 1.07E+08
Net Cash
-1.05E+08 -1.65E+08 -1.87E+08 3.50E+08 4.55E+08 3.50E+08 3.50E+08 3.50E+08 2.25E+08
Flow
Cumulative
-1.05E+08 -2.70E+08 -4.57E+08 -1.07E+08 3.48E+08 6.98E+08 1.05E+09 1.40E+09 1.62E+09
Cash
8.3.2 Net Present Worth (NPW)

The net cash flow in each year of the project was brought upon its “present worth” at the
start of the project by discounting the value at some chosen compound interest rate.

Estimated net cash flow ∈ year n(NFW )

NPW of cash flow∈ year n=
(1+r )n

Where;

n = Life of project (Year when project start making returns)

r = The discount rate (interest rate)

bank interest rate ( % )

r=
100 %

10 %
r= =0.1
100 %

NFW (at year 5)=RM 3.48 ×10 8

RM 3.48× 108
NPW 5= 5
(1+ 0.1)

NPW 5=RM 216,080,620.40

NPW 5=RM 2.16 ×10 8

The value of NPW is much smaller compared to NFW, and reflect that time value of
money and the earnings pattern over project life [ CITATION Sin051 \l 17417 ]. If the money
were invested, the figures obtained will be roughly equivalent to the current interest rate that
could be earned from the project.
8.3.3 Payback Period

Payback period, defined as the time required to pay off the initial investment form
income, after the start of the project. This is an important criteria in judging the
improvements of the projects on operating plants. Typical payback time is 2 to 5 years,
depending on the projects [ CITATION Sin051 \l 17417 ].
8.3.4 Return of Investment (ROI/ROR)

Rate of Return (ROR), defined as the ratio of annual profit to investment. It is a simple index
to show the performance of the invested money. The calculation to base the ROR is based
on the average income over life of project and the original investment invested [ CITATION
Sin051 \l 17417 ].

Cumulative net cash flow at end of project

ROR= ×100 %
Life of Project × Original Investment

Where; cumulative income represented by F-C, Investment represented by C, Life of

project is G.

F−C
ROR= ×100 %
C ×G

Where;

F : Maximum cumulative cash flow

C : Minimum cumulative cash flow

G : Total Year of project (9 years)

1.62 ×10 9−(−4.57 ×108 )

ROR=¿ ∨×100 %
(−4.57 × 108 )× 9

ROR=50.50 %