ENGINEERING ESTIMATES

FOR GASIFICATION
PROJECTS
Presented to:
2008 Gasification Technologies Council
Authors: L. Bonnell; J Hemmings; J. Leatherwood; J. Davis
SNC-Lavalin, Houston Business Unit
The information contained herein is gathered from public and non-confidential sources and is offered only within the context of this non-authoritative presentation. The values
presented herein are nominal and typical values for discussion and presentation purposes only. The material is subject to frequent and substantial change over time and some sources
cannot be independently verified. This information is not suited for technical basis of design nor for financial, business or investment decisions. The format and content are that of the
Authors.
Large Scale Gasification Projects
 Project
j Development
p Issues

Accurate capital
p cost information is required
q early
y in design
g to make
investment decisions on projects that require 32- 40 months to first
production.

The accuracy of any cost estimate is a direct function of the amount of

upfront engineering effort expended, i.e. work-hours, services cost
and calendar time and the skills of the estimating team

How do we select the proper capital cost estimate to satisfy:

♦ lender requirements;
♦ lead
lead--time to financial close ((how much design
g work is done);
);
♦ Owner desire to minimize costs prior to financial close
 Pre-FEED
ESTIMATE DEFINITION#
Conceptual - Feasibility -
Process Project FEED – EPCM-
P li i
Preliminary D t il d
Detailed
Definition Definition Validation Implementation
Assessment Assessment

Study Class V Class IV Class III Class II Class I

(< 1% eng.) (1-5% eng.) (5-25% eng.) (25-50% eng.) ( >50% eng.)
g)
+100%/-50% +50%/-30% +35%/-20% +25%/-10% +15%/-10% +10%/-10%
Scoping /
Curve / OOM Factored Budget Control Definitive
Conceptual
•Full P&ID- IFD •IFC documents
•Business Model •Project Objectives • Process Objective •Project Objectives
O
•H&M Balance •Equip. layout* •Equipment & Bulk
•Technology Options • Product Mix •Site Prep*
•Project Objectives •PFD-IFE purchased
•Business Plan • Feedstock •Civil Design*
•Prelim P&ID ƒEngineering Hrs set
•Economic Model •No P&ID •Structural*
•Product Mix •Sized Equip List ƒLabor rates set
Preliminary: •Piping*
•Licensor PDP • Detailed Design
•General Location •Feedstock
F d t k Options
O ti •Safety
S f t / Fire*
Fi *
- H&M Balance •Equip. Layout-IFE
•Equip. Datasheets* •Approved for
•Capacity Options - PFD •Electric One-line
•DCS Spec.* • Construction
•Site Alternative •Utilities
- Equip. List •HAZOP Review •Procurement
•Emissions
•Block Flow Diagram - Site Layout •Constructability •Construction
•Pipe rack
- Utilities •EPCM Schedule •Mechanical Complete
p
•Preliminary
Preliminary Layout Buildings
•Buildings
•FEL Rating
- Emissions •DCS I/O Count •Project closeout
•Firm quotes for
• Licensor selection •HAZID/”What If” •Punch List
•Verbal quotes major equip. •Turnover
• Few/No quotes *Client approved for
for major equip.
design

1 - 2 mo. 3 – 4 mo. 7 - 9 mo. 10 - 12 mo. 18 - 24 mo.

# Follows AACEI Cost Estimate Classification System
 Estimate Basis – Raw Capital Costs

Equipment – tagged / named 30%

Bulk materials-
materials- concrete, steel, pipe, etc. 25%
Field supervision & labor hours 20%
Engineering & Project Management services 9%
Temporary construction facilities 6%
Transportation; rigging; warehousing 4%
Site p
preparation;
p ; buildings;
g ; security
y 4%
Insurance; fees; licenses; permits; tolls; duty 2%

plus: Owner’s cost; cost during construction;

escalation; risk ; contingency
Lender Requirements for Initial Financing

Class I Capital Cost Estimate (nominally +10% / -10%)

Fully--defined Facility Design with Proven Technology
Fully
Permits Issued with no Challenges
GHG Planning – CO2 Plan
Experienced Project Team
D t il d E
Detailed Execution
ti PlPlan & S
Schedule
h d l through
th h Acceptance
A t
Formal Risk Assessment (validates estimate accuracy)
Equity > 30% - 40% to preclude need for “wraps”
Fixed Price at financial close
 Timing of Financial Close

Owners want low cost & short schedule

~25+% eng.

FEED EPC
Owner Desired Timing of Class II @ +15% / -10%
Financial Close & Fixed price
Timing of Financial Close – Different Objectives

Owners want low cost & short schedule

~25+% eng.

FEED EPC
Owner Desired Timing of Class II @ +15% / -10%
Financial Close & Fixed Price

Lenders want 10% estimate & fixed price

~ 60% eng. Class I @ +10%
10% / -10%
10%

FEED EPC

Convert to
fixed price
 Resolving the Issue
Low cost & short schedule vs
vs. 10% estimate & fixed price

Convert to
Cl
Class I
Firmer Price

FEED Extend EPC

Class II
Bridge
F di
Funding
1. Complete FEED to develop Class II target cost estimate; QRA to define risk
2. Bridge
g funding
g to develop
p Class I estimate – trend costs during
g extension
3. Fix equip., services, bulks (>65% of TIC) with remainder continuing to trend
4. Convert remainder to a firmer but not fixed total cost
 Challenges to Estimate Accuracy

• ”Turmoil”
Turmoil in capital project costs
costs, schedules
schedules, labor cost
cost,
availability and lead times causes traditional estimating
methods utilizing historical data to be more uncertain.

• Historical cost database soon outdated.

• Less
L predictability
di t bilit in
i equipment
i t & material
t i l lead
l d time,
ti costt
escalation, labor availability over extended time intervals.

• Critical suppliers pricing power – gasifier, ASU, turbines

 Project Lessons Learned

1. Lack of understanding of project complexity - it is a “custom” design.

2. “Turmoil” impacts the ability to accurately predict future costs and
lead times making a fixed price project very risky.
3. Project
j cost based upon
p equipment
q p costs without site related issues
being considered.
4. Desire to ascribe greater accuracy to an estimate without supporting
technical documentation.
5. Insufficient funding and time allocated to execute design work to
properly support a high accuracy estimate.
6. Under
Under--estimation of p
permitting
g challenges.
g

7. Need for frequent open and honest communication among

Owner – Contractor – Lender to understand the true risks.
THANK YOU