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IHS CHEMICAL

Estimation of Project Cost

Beyond EPC Construction Costs
Process Economics Program Review 2017-15

December 2017 ihs.com

PEP Review 2017-15

Estimation of Project Cost
Beyond EPC Construction Costs

Tony Pavone
Director of Process Engineering

Michael Arné
Director, Emerging Technologies
IHS Chemical | PEP Review 2017-15 Estimation of Project Cost Beyond EPC Construction Costs

PEP Review 2017-15

Estimation of Project Cost Beyond EPC Construction Costs
Tony Pavone, Director of Process Engineering
Michael Arné, Director, Emerging Technologies

Abstract

PEP has traditionally provided cost estimates that are limited to EPC (engineering, procurement, and
construction) costs and contain a minimum of presupposition. We assume, for example, instantaneous
construction and do not include the cost of land. This is deliberate—we want a client who intends to use
our estimates in a more formal analysis not to have to back out numerous IHS-generated assumptions.

Total owner’s cost goes beyond this, however, and contains significant “other costs” that are required “from
concept to commercialization.” Clients have from time to time asked us for guidance in identifying and
then quantifying these additional cost burdens. These costs can be capital costs or noncapital costs, and they
open our consideration beyond the physical boundaries of the plant to include infrastructure requirements
that are necessary for the plant to be made operational.

This report details our analysis of significant project development costs, from concept to commercialization,
which includes but is not limited to EPC costs. Since every construction project is unique, we present these
costs as a range of the percentage of the EPC capital cost estimate. In this way, the client can use the
PEPCOST EPC estimate as a starting point, and then build up their own estimate. We present our estimates
of the likely ranges of investment required for product definition and development, permitting, and cost
activities prior to the final investment decision. We also examine infrastructure costs both just outside the
plant gate and remote from the plant. We identify and quantify those EPC costs beyond the typical
PEPCOST estimate. Finally, we quantify financial costs during construction as well as requirements for
working capital.

© 2017 IHS 1 December 2017

IHS Chemical | PEP Review 2017-15 Estimation of Project Cost Beyond EPC Construction Costs

Contents

1 Introduction 6
2 Summary 7
3 PEP capital cost estimating methodology 10
Estimating ISBL (inside battery limits) capital costs 14
Estimating OSBL (outside battery limits) capital costs 19
4 Project development costs prior to executing an EPC contract 23
Introduction 23
Phases of project development costs prior to executing an EPC contract 23
Key components of project definition 23
Segmentation of project definition activities 24
Front end planning 25
Project governance 26
Accurate front end scope definition 26
Costs of project definition phase of project development 27
Competitor evaluation study 30
Feedstock supplier evaluation study 30
Feasibility study 31
Pre-FEED Study and FEED study 33
Impact of project type on project definition costs 34
Project development costs 34
Site evaluation study 34
Licensor technology evaluation 35
Subsurface evaluation study 36
Project constructability study 37
Government permitting costs 38
Environmental impact study (EIS/EIR) 39
Socio-economic study 40
Endangered/threatened species evaluation 40
Local transportation and roadway evaluation 41
Atmospheric emissions evaluation study 42
Well or surface water taking permits 42
Wastewater discharge (NPDES) permit application 42
Air pollution permit application 44
A solid waste (RCRA Act) permit application 45
Permit application to construct (construction permit) 45
Waterways/dredging permit application 47
Cost activities prior to final investment decision (FID) 48
5 Infrastructure costs outside the plant gate 49
Infrastructure costs at site outside plant gate 49
Infrastructure costs remote from plant 52

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IHS Chemical | PEP Review 2017-15 Estimation of Project Cost Beyond EPC Construction Costs

6 Financial costs 55
Introduction 55
Financial costs during construction 55
Working capital 56
Raw material accounts payable 56
Raw material inventory 56
Labor accounts payable 56
Utilities accounts payable 56
Finished product inventory 57
Accounts receivable 57
Taxes payable 57
Freight payable 57
Cash on hand 57
7 Project cost components beyond a PEPCOST EPC capital cost estimate 59
Purchased land costs 59
Process design package cost 60
Plant models, either model shop or 2D/3D/4D computer models 60
Capitalizable licensing costs 61
Initial and spare charge of catalyst 61
Project construction management (PMC) costs 62
Maintenance shop equipment costs 62
Offsite equipment delivery, storage and laydown areas 62
Construction crew housing and worker offsite amenities 62
Expatriate labor costs 63
Liability insurance during construction 63
Religious buildings and other site specific cultural amenities 64
Project commissioning costs 64
Startup costs 65
Process equipment required only for startup or shutdown (startup spares) 65
Advanced waste treatment (e.g., reverse osmosis and wastewater treatment for recycle) 65
Storm water management and treatment systems 65
Extreme design criteria 66
Geotechnical facilities and/or secondary containment tank berms 66
Appendix A—Cited references 67

Tables
Table 1 List of geographic location factors in 2017 7
Table 2 Impact of non-TFC costs on project capital cost estimate 9
Table 3 List of GTC patents on aromatics technology obtained via USPTO computer search 10
Table 4 Typical PEP patent summary table entries 11
Table 5 Conventional PEP design basis table 13
Table 6 Conventional PEP stream-by-stream material balance 14
Table 7 Conventional PEP ISBL equipment list with duty specifications 15
Table 8 PEPCOST purchase + direct installation cost for ISBL process equipment 16
Table 9 PEPCOST Total fixed capital cost for ISBL process equipment 17
Table 10 “Special packaged equipment” list from a 2016 PEPCOST equipment list 18
Table 11 Breakdown of major OSBL total fixed capital cost components 19
Table 12 Breakdown of OSBL capital cost components 19
Table 13 Cost of project definition activities as % of TFC 27
Table 14 Elements of a conventional conceptual study 28
Table 15 Primary sources of project risk 29
Table 16 Key characteristics of competitor firms 30

© 2017 IHS 3 December 2017

IHS Chemical | PEP Review 2017-15 Estimation of Project Cost Beyond EPC Construction Costs

Table 17 Criteria used to evaluate potential feedstock suppliers 31

Table 18 Key components of a feasibility study 31
Table 19 Anticipated costs for project development activities 34
Table 20 Components of site evaluation study 35
Table 21 Range of government permitting costs for noncontroversial projects 38
Table 22 US National Environmental Policy Act submission requirements 39
Table 23 Cost activities prior to FID 48
Table 24 Infrastructure costs at site, outside plant gate 49
Table 25 Infrastructure costs remote from plant 52
Table 26 Financial costs during construction 56
Table 27 Working capital guidelines for various process types 57
Table 28 Typical working capital requirements for various process types 58
Table 29 EPC costs beyond the PEPCOST estimate 59

Figures
Figure 1 Value of PEPCOST index over time 7
Figure 2 Conventional PEP overall input/output diagram with material balance 10
Figure 3 Conventional PEP block flow diagram 12
Figure 4 Conventional PEP process flow diagram 12
Figure 5 Segmentation of major ISBL total fixed capital cost categories 18
Figure 6 Breakdown of OSBL capital cost components 20
Figure 7 Conventional secondary biological wastewater treatment plant block flow diagram 21
Figure 8 US EPA NPDES wastewater discharge form 43
Figure 9 Air permit application for the State of Illinois 44
Figure 10 Infrastructure costs at site outside plant gate 50
Figure 11 Infrastructure costs at site outside plant gate 53

© 2017 IHS 4 December 2017

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