CHAPTER 1
INTRODUCTION
1.1
BACKGROUND OF METHANOL
Methanol was first discovered in 1823 by condensing gases from burning wood. Methanol has been used for more than 100 years as a solvent and as a chemical building block to make products such as plastics, plywood, and paint. It is also used directly in windshield-washer fluid, gas-line antifreeze, and model airplane fuel. Besides that, methanol was applied as a fuel on vehicles produced by major auto manufacturers in the US. Methanol has recently been discontinued in favor of ethanol, which are a less corrosive fuel and more friendly to critical fuel delivery system components onboard the vehicle. Pure methanol is not sold as an individual motor fuel, although in its pure form it is commonly used as racing fuel. As a motor fuel for general transportation it is mixed with gasoline to produce M85 (85% methanol and 15% gasoline). It is also the primary alcohol used to mix biodiesel. Methanol has advantages and disadvantages. The advantages of methanol include it has potential to provide a bridge to the hydrogen economy of the future. Methanol can be used to produce hydrogen, and the methanol industry is working on technologies that would allow methanol to produce hydrogen for fuel cells. Then, it can be dispensed from pumps much the same as gasoline. In addition, methanol is less volatile than gasoline. It burns more slowly and at a lower temperature, because of its high flash point. On the 1
other hand, the disadvantages of methanol are expensive compare togasoline; it is a volatile fuel (flammable) because of the blending with gasoline. Also, methanol can be fatal when ingested as with gasoline and ethanol. Inhalation of fumes and direct contact with skin can be harmful. However, methanol has the potential as renewable energy resource, which not give bad effect especially on human health and the environment. It is because methanol is water soluble, so it could be quickly diluted in large bodies of water to levels that are safe for organisms. Last but not least, benefit of using methanol is a reduction in the amount of pollutants emitted into the air we breathe. For example, M85 has 50% fewer toxic air pollutants than gasoline(http://www.methanol.org/) gasoline(http://www.methanol.org/)..
1.2
PROPERTIES OF METHANOL
1.2.1
PHYSICAL PROPERTIES OF METHANOL
Methanol also called as methyl alcohol. It is the simplest of long series of organic compounds called alcohols. Its molecular formula is CH3OH. Methanol is a colorless liquid, completely miscible with water and organic solvents and is very hygroscopic (absorb moisture from the air). It forms explosive mixtures with air and burns with a no shiningflame. It is a violent poison, means that if human drink drinking mixtures containing methanol has caused many cases of blindness or death. Methanol has a settled odor. It is a potent nerve poison (Steve, 2006). Table 1.1shows the key of physical properties of methanol:
2
other hand, the disadvantages of methanol are expensive compare togasoline; it is a volatile fuel (flammable) because of the blending with gasoline. Also, methanol can be fatal when ingested as with gasoline and ethanol. Inhalation of fumes and direct contact with skin can be harmful. However, methanol has the potential as renewable energy resource, which not give bad effect especially on human health and the environment. It is because methanol is water soluble, so it could be quickly diluted in large bodies of water to levels that are safe for organisms. Last but not least, benefit of using methanol is a reduction in the amount of pollutants emitted into the air we breathe. For example, M85 has 50% fewer toxic air pollutants than gasoline(http://www.methanol.org/) gasoline(http://www.methanol.org/)..
1.2
PROPERTIES OF METHANOL
1.2.1
PHYSICAL PROPERTIES OF METHANOL
Methanol also called as methyl alcohol. It is the simplest of long series of organic compounds called alcohols. Its molecular formula is CH3OH. Methanol is a colorless liquid, completely miscible with water and organic solvents and is very hygroscopic (absorb moisture from the air). It forms explosive mixtures with air and burns with a no shiningflame. It is a violent poison, means that if human drink drinking mixtures containing methanol has caused many cases of blindness or death. Methanol has a settled odor. It is a potent nerve poison (Steve, 2006). Table 1.1shows the key of physical properties of methanol:
2
Table 1.1: Physical properties of methanol
Types
Properties
Molecular weight
32.04 g/mole
Melting Point
-97.7 0C
Boiling Point
65 0C
Relative Density
0.79
Formula
CH3OH
Molecular weight
32.042 kg/kmol
Heat of Formation
-201.3 MJ/kmol
Gibbs Free Energy
-162.62 MJ/kmol
Freezing point
-97.7 °C
Boiling point (at atmospheric
64.6 °C
pressure) Elemental composition by weight % Oxygen
50%
% Carbon
37.5%
% Hydrogen
12.5%
Source: Steve, 2006
3
1.2.2
1.2.2.1
CHEMICAL PROPERTIES OF METHANOL
COMBUSTION OF METHANOL:
Methanol burns with a light-blue, non-luminous flame to form carbon dioxide and steam.
2CH3OH
1.2.2.2
+
3O2 ===>
2CO2 + 4H2O
OXIDATION OF METHANOL:
Methanol is oxidized with acidified Potassium Dichromate, K2Cr2O7, or with acidified Sodium Dichromate, Na2Cr2O7, or with acidified Potassium Permanganate, KMnO4, to form formaldehyde. CH3OH
===>
(Methanol)
HCHO
+
H2
(Formaldehyde)
2H2 + O2 ===>
2H2O
If the oxidizing agent is in excess, the formaldehyde is further oxidized to formic acid and then to carbon dioxide and water. HCHO (Formaldehyde)
===> HCOOH ===> CO2 + H2O (Formic Acid)
4
1.2.2.3
CATALYTIC OXIDATION OF METHANOL:
The catalytic oxidation of methanol by using platinum wire, for example it was used in model aircraft engines to replace the sparking plug arrangement of the conventional petrol engine. The heat of reaction is sufficient to spark the engine.
1.2.2. 4
DEHYDROGENATION OF METHANOL:
Methanol can also be oxidized to formaldehyde by passing its vapor over copper heated to 300°C. Two atoms of hydrogen are eliminated from each molecule to form hydrogen gas and hence this process is termed dehydrogenation. Cu 300°C
CH3OH ===> (Methanol)
1.2.2.5
HCHO
+
H2
(Formaldehyde)
DEHYDRATION OF METHANOL:
Methanol does not undergo dehydration reactions. Instead, in reaction with sulphuric acid the ester, dimethyl sulphate is formed.
5
Concentrated H2SO4
2 CH3OH
===>
(Methanol)
1.2.2.6
(CH3)2SO4
+
(Dimethyl Sulphate)
H2O (Water)
ESTERIFICATION OF METHANOL:
Methanol reacts with organic acids to form esters. H (+)
CH3OH (Methanol)
1.3
+
HCOOH
===>
(Formic Acid)
HCOOCH3
+
(Methyl Formate)
H2O (Water)
APPLICATION OF METHANOL
Methanol has been used in variety of applications, which can be divided into three categories which are as feedstock for other chemicals, fuel use, and other direct uses as a solvent, antifreeze, inhibitor, or substrate. It also is being used safely and effectively in everything from plastics, to construction of materials, and many more. Other than that, it can be an excellent turbine fuel for electric power generation and as an ideal hydrogen carrier fuel for fuel cell technology applications (Steve, 2006). It has been used traditionally as feed for production of range chemicals including acetic acid and formaldehyde. Next, it is a common laboratory solvent, especially useful for HPLC, UV/VIS SPECTROSCOPY, and Liquid chromatography mass spectrometry due to its low Ultraviolet (UV) light cutoff. Largest use of methanol is in making other
6
chemicals such as about 40 % of methanol is converted to formaldehyde, and from there into variety of products like plastics, plywood, paints, and permanent press textiles. Afterward, it is used on a limited basis to fuel internal combustion engines. Pure methanol is used in sprint cars and other dirt track series such as Motorcycle Speedway. Other than that, it is used as primary fuel ingredient in the power plants for radio control, control line, and free flight airplanes. Last but not least, methanol can be used in wastewater treatment plants, which small amount of methanol is added to wastewater to provide a food source of carbon for denitrifying bacteria. Methanol also can be used as fuel in camping and boating stoves (Kirk, 1981). Figure 1.1 below show about 38% of methanol is converted to formaldehyde, and from there into products as diverse as plastics, plywood, paints, explosives, and permanent press textiles.
Figure 1.1: The Uses of Methanol. Source: http://www.methanol.org/
7
CHAPTER 2
MARKET OVERVIEW, SURVEY AND SITE LOCATION
2.1
NATURAL GAS SUPPLY, DEMAND AND PRICE
2.1.1
INTRODUCTION
The economics of methanol and other alternative fuels use has depend on the costs of manufacturing plants, distribution systems, vehicles, and on the environmental impact of these fuels. From the previous studies, it was found that availablegas as feedstockassumed at some proposed price ($0.50/MMBtu) based on the need for local infrastructure or the availability of a local gas market. In specific, more focus was made on the potential availability of vented and flared gas at almost no cost to the methanol plant(Roan, 2004).
Today, the largest chemical methanol plants have an operating capacity of about2,500 tonnes/day.A large-scale methanol fuel facility would containfour such plants in a single complex which produce 10,000 tonnes/day, or 80,000 barrels per day (b/d) of methanol. In either case, the facility would have a feedstock requirement of roughly 300 million cubic feet per day (MMcfd) of natural gas (Steve, 2006).
8
2.1.2
WORLDWIDE NATURAL GAS SUPPLY IN CHINA
The reserves of natural gas contain only 80 percent as much energy as the total proved reserves of liquid hydrocarbons worldwide. It has its own reason to believe that potential gas reserves are currently minimized. The major reason for this is natural gas transportation is very costly compared to oil transportation. As a result, only 13 percent of the world’s natural gas production ever leaves its country of origin. Similarly, natural
gas accounts for only 14 percent of the total international trade in hydrocarbons, with movements of liquefied natural gas (LNG) by tanker accounting for less than 4 percent of total world tanker trade(Nobuyuki, 2009). The high cost of gas transportation sets it apart from oil as an energy commodity, making the commercial value of gas discoveries very dependent on how far they are from markets. Over the past decade the world has added nearly three and a half times as much gas to its proved reserves as it has consumed. But many of these reserves are in locations, such as western Siberia in the Soviet Union or in the Middle East(Nobuyuki, 2009). Figure 2.1 shows the geographic pattern of gas consumption in 1988 compared to average annual reserve additions over the past decade. The surplus of gas in the U.S.S.R., the Middle East and Africa is apparent.
9
Figure 2.1: The Geographic Pattern of Gas Consumption in 1988 Source: (Nobuyuki, 2009)
Large pool of potential raw material for fuel methanol production was represented because of gas reserves are noticeablydeveloped, and also for pipeline or LNG export.It is because methanol is comparatively inexpensive to transport over long distances by tanker, the economics of its production are less sensitive to distance than those of pipeline gas or LNG (Roan, 2004).
10
2.1.3
OCCURRENCE OF NATURAL GAS
In oil reservoirs, natural gas act as connected gas, it can be in solution in the oil, also natural gas contained in gas caps covering the oil pool. Besides that, natural gas act as unconnected in gas reservoirs, because sometimes oil reservoirs contain light crude oil such as gas condensate. Thus, in world’s gas reserves shown that 70 % are unconnected.In addition, the production of unconnected gas is flexiblebecause it is not developingsince there is no attraction in market (Holm, 2000).
Next, sometimes production of unconnected gas is not optional because solution gas produced is along with the oil and separated at the surface. However, if it has no market, it may be sealed at some cost by re-injecting it into the oil reservoir or it may simply be flared.Much of the gas that is being flared throughout the world is dispersedand cannot be gathered easily for feedstock use. Table 2.1 summarizes flared gas production in 1988. Even countries with well established gas markets, such as the U.S. or the U.K. still have significant quantities of flared gas. However, as the table demonstrates, the amount of gas flared in an entire country is usually not large compared to the 300 million cubic feet per day (MMcfd) of feedstock that would be required by a single 10,000 tonne per day methanol fuel plant (Kirk, 1981).
11
Table 2.1: WORLDWIDE GAS FLARING, 1988
Type of country
BCFD
Methanol Complex Equivalents
U.S.S.R
1.93
6.4
Nigeria
1.18
3.9
Algeria
0.58
1.9
Iraq
0.44
1.5
Indonesia
0.42
1.4
U.S
0.39
1.3
Iran
0.39
1.3
India
0.38
1.3
Venezuala
0.35
1.2
Trinidad
0.34
1.1
Saudi Arabia
0.32
1.1
Canada
0.26
0.9
Libya
0.25
0.8
U.K
0.22
0.7
Argentina
0.19
0.6
All Other
1.30
4.3
WORLD TOTAL
8.94
29.8
‘Methanol Complex Equivalents at 300 MMcfdFeedstock Requirements’
Source: Kirk, 1981
12
2.1.4
MARKET STATUS OF RESERVES
In 1977, Jensen Associates has been making annual estimates of the market status of world gas reserves in order to identify large blocks of good quality reserves potentially available for export. The methodology classifies reserves into six market categories. Two categories reflect existing commitments to domestic and export markets, two comprise “deferred” and “frontier” reserves whose commercialization is delayed and two cover
surplus gas that is marginal or exportable. The summary estimates contained in Figure 2.2 and Table 2.2 is based on detailed country by country analysis. Exportable surpluses are shown in Figures 2.3 and 2.4 (William, 2003).
Gas committed for export is straightforward. It is simply the sum total of gas to be delivered over the life of export contracts. Gas committed to domestic markets may refer to local gas production in countries that on the margin are importers, such as the U.S. and West Germany. In countries such as Canada and the Netherlands which are substantial exporters, the domestic commitment refers to some level of domestic set aside which must be maintained for the exporting country to feel secure before making new export commitments.
“Deferred” or “frontier” gas is classified for commercialization of reserves that has been
delayed. The frontier category is used to describe high quality. Deferred gas refers to reserves whose production is determined by oil reservoir considerations that limit the flexibility the seller has to commit the gas to market outlets. It may be gas contained in a gas cap and currently unavailable for market, or gas undergoing injection for oil field pressure maintenance. Besides that, it may simply reflect the fact that solution gas production in a country where associated gas predominates, such as Saudi Arabia or Kuwait, will not be available for market if the oil production levels do not permit it.
13
Figure 2.2: Market Status of World Proved Gas Reserves Source: William, 2003
Figure 2.2illustrate the twofinal categories for both surpluses to estimate commitments. The separation of this surplus gas into “exportable” and “marginal” categories reflects a
country by country judgment as to whether the gas reserve is sufficiently large and well placed to support international gas trade. By these definitions, 43 percent of the world’s proved gas reserves can be considered as “exportable surplus” (William, 2003).
14
Table 2.2: World Proved Reserves (1988)
Table 2.2: World Proved Reserves (1988) Region
Proved Reserves
Committed Domestic
Export
Delayed Deferred Frontier
Surplus Exportable Marginal
NORTH AMERICA OECD EUROPE
286.9
182.6
16.8
30.1
14.4
39.7
3.3
OECD U.S.S.R Other east ASIA PASIFIC
200.0 1500.0 29.0
78.8 481.8 28.6
45.2 62.0 0.0
6.8 0.0 0.0
0.0 0.0 0.0
66.5 836.2 0.0
2.7 120.0 0.4
OECD Indonesia Non- Opec Developing China LATIN AMERICA
78.0 83.6 134.4 31.7
22.6 9.5 46.9 9.7
5.7 29.8 6.5 0.0
0.2 3.1 0.0 0.0
0.0 0.0 0.0 0.0
45.8 39.5 50.3 0.0
3.7 1.7 30.7 22.0
OPEC Non_OPEC Developing
106.2 134.5
14.0 44.1
0.0 0.3
73.0 50.1
0.0 0.0
16.8 34.1
2.4 5.9
OPEC Non_OPEC Developing MIDDLE EAST
215.5 32.2
40.8 10.7
28.3 0.0
25.0 0.8
0.0 0.0
104.1 6.7
17.3 14.0
OPEC Non_OPEC Developing
1146.2 21.0
85.1 7.6
2.9 0.0
461.8 2.3
0.0 0.0
482.9 0.0
113.5 11.1
TOTAL WORLD
3999.2
1062.8
197.5
653.2
14.4
1722.6
348.7
AFRICA
15
FIGURE 2.3: PROVED RESERVES AND EXPORTABLE SURPLUS Source: William, 2003
FIGURE 2.3: PROVED RESERVES AND EXPORTABLE SURPLUS Source: William, 2003
16
FIGURE 2.4: PROVED RESERVES AND EXPORTABLE SURPLUSES Source: William, 2003
FIGURE 2.4: PROVED RESERVES AND EXPORTABLE SURPLUSES Source: William, 2003
17
Next, from figure 2.3 and 2.4, they show just four countries such as the U.S.S.R., Iran, Abu Dhabi, and Qatar were accountfor 75 percent of the world’s exportable gas surplus. But a number of othershaves large enough blocks of exportable reserves for gas export projects to beunder active consideration. In order of exportable reserve size, they includeNigeria, Norway, Australia, Indonesia, Algeria, Malaysia, Venezuela, andTrinidad(William, 2003).
Several other countries have also been mentioned at some time as possiblelocations for LNG exports. For example, include Argentina and Bangladesh. However, because their reserves are comparatively small and areremote from major LNG markets, they are not being actively pursued.Nevertheless, they may be candidates for future methanol fuel plants.
Next, from figure 2.3 and 2.4, they show just four countries such as the U.S.S.R., Iran, Abu Dhabi, and Qatar were accountfor 75 percent of the world’s exportable gas surplus. But a number of othershaves large enough blocks of exportable reserves for gas export projects to beunder active consideration. In order of exportable reserve size, they includeNigeria, Norway, Australia, Indonesia, Algeria, Malaysia, Venezuela, andTrinidad(William, 2003).
Several other countries have also been mentioned at some time as possiblelocations for LNG exports. For example, include Argentina and Bangladesh. However, because their reserves are comparatively small and areremote from major LNG markets, they are not being actively pursued.Nevertheless, they may be candidates for future methanol fuel plants.
18
2.1.5
NATURAL GAS CONSUMPTION
In order to support a methanol fuel plant, the most important constraint is that the gas reserve must provide a predictable and reliable supply of feedstock over the life of the plant so the operation will be undamaged. However, the problem is that the search forsuitable feedstock for methanol plants, like the search to support LNG exports. For example, in North America, gas has reached product status where the price charged to a methanol plant will be determined by the going market rate.
However, relative to the price of oil and other fuels, the pattern of gas price formation differsfrom one region to another. In Japan, gas imported as LNG was used to displace oil and now that country was dependent on LNG for power generation.
In Europe, the development of gas trade increased substantially after the discovery of the Groningen field in the Netherlands in 1959. Although there is locally produced gas in many European countries, it represents less than half of local consumption. Thus on the edge, the major import supply contracts from Algeria, the Netherlands, Norway and the U.S.S.R., have tended to establish the level of gas prices for European markets. These prices have often been negotiated between governmental buyers and sellers. Usually, the contracts between supplier and buyers based on oil price relationships, and although there has been some effort to introduce coal competitive elements (Roan, 2004).
19
2.2
METHANOL MARKET SURVEY IN CHINA
2.2.1
GLOBAL DEMAND OF METHANOL
Methanol is becoming the favoriteof the global economy. Methanol production process is relatively simple and varioussources of raw materials such as coal, naphtha and natural gas. Methanol has wide range of uses and its downstream products as many as several hundred. In recent years, due to the strengthening of environmental awareness around the world, especially in U.S around 1990 after the approvalof the Clean Air Act Amendments of methanol worth prepare by the global methanol demand growth to accelerate (Steve, 2006). For methanol industry, China always ranks first worldwide production of methanol. It was because the rate of development in China higher compare to any one country alone last five years.Based on the Figure 2.5, it shows that China is the largest producing region or countryfor consuming methanol in 2008, and it would be the largest producer in 2013 (Nobuyuki, 2009). In addition, other significant factor in methanol supply or demand is that the new mega methanol plants (1.0 – 2.0 million metric tons per year) are much larger than existing plants. Thus, they will have reduced fixed costs, as well as greatly reduced natural gas costs because of their strategically located feedstock, giving a significant cost advantage. This will drive down the cost of methanol, and cause major shifts in trade patterns. This cost competitive position will also make the methanol to olefins technology more competitive with existing olefins technologies. Locations for these large new methanol plants are in Iran, Saudi Arabia, Oman, Trinidad, and Tobago. In China, some researches have been conducted for producing light olefins from dimethyl ether or methanol using dimethyl ether/methanol-to-olefins (DMTO) technology. Currently, there are two projects under development in China using this technology, which integrated with coal gasification methanol plants. There is also much interest in developing methanol-to-propylene (MTP) technology because of the 20
interest in direct production of propylene as opposed to producing it as a co-product of ethylene in steam cracking of various heavy feedstock (Nobuyuki, 2009).
Figure 2.5: World Consumption of methanol (2008) Source: Nobuyuki, 2009.
In the worldwide, formaldehyde production is the largest consumer of methanol with more than 34% of world methanol demand in 2008. Demand is driven by the construction industry since formaldehyde is used primarily to produce adhesives for the manufacture of various construction board products. Historically, the major end product has been plywood, but in developed countries, demand is also driven by the expanding use of engineering board products such as OSB (oriented strandboard). These wood composite products require more formaldehyde based resin per square foot of board than plywood. Demand for formaldehyde is highly dependent on general
21
economic conditions, means that a slowdown in construction can considerably reduce formaldehyde demand (Roan, 2004). The second largest market for methanol worldwide is methyl tertiary-butyl ether (MTBE) with 13% of world methanol demand in 2008. Methanol consumption for MTBE has been on the decline in the United States since 1999, and since 2006, U.S. consumption of MTBE has only been for export markets or for the export directed gasoline pool. In other regions of the world, especially where lead compounds are currently used to maintain octane levels, some growth for MTBE is still possible. Worldwide, methanol consumption for MTBE has been declining since 2003, an average decline of 1.4% per year worldwide is likely from 2008 to 2013, and very soon, MTBE will no longer be the second-largest world market for methanol (Holm, 2000). Overall, world demand for methanol is projected to grow at an average annual rate of 7.8% from 2008 to 2013, with lower growth expected in the industrialized areas of the world where the markets are mature. The largest consumer of methanol in 2013 will be China. As a reflection of its growth potential, it is interesting to note that in spite of its projected methanol capacity in 2013, China will still remain a net importer. Asia (including China, Japan and Other Asia) will account for 56% of consumption in 2013. The second largest consuming region will be Europe, followed by North America. Methanol is a low value added chemical products. Low cost competition is the core of such products, but also an important manufacturing enterprises to adopt competitive strategies, is the key to business to settle down. Need to optimize the various effects of low cost product cost factors of production, including the price of raw materials, process routes, financing costs, device size and logistics costs (Kirk, 1981). Currently the general small scale methanol plant will use coal as raw materials account for about 78%, unit of investment in high capacity, about foreign investment in large scale methanol plant 2 times, leading to the high cost of finance costs and depreciation.All of these factors will affect the cost.
22
2.2.2
ASIA DEMAND OF METHANOL
Methanol has also been used as an alternative fuel. In Europe, methanol is used in the production of biodiesel, which can replace refinery based diesel for use in transportation. In China, methanol is used directly as a blending component of gasoline, driven by the need to extend the octane pool in that country, and also due to economic feasibility as high crude oil and gasoline prices have encouraged the use of less costly methanol. Methanol has also been considered for direct combustion in combined cycle power generation facilities (William, 2003). There is also significant commercialization effort underway in two developmental uses for methanol which are fuel cells and methanol-to-olefins (MTO). Fuel cells can utilize the hydrogen molecules of methanol (as well as other fuels) to create electricity and also water. MTO utilizes methanol as an intermediary step in the production of olefins and their derivatives (ethylene, propylene, polyethylene, and polypropylene). All of these alternative fuel uses for methanol have significant obstacles in their commercialization, but high potential demand.
23
Figure 2.6: Methanol demands by major region in the world on 2008. Source: William, 2003.
Based on the figure 2.6, it shows that Asia represents the larger demand of methanol in the world with 53 %. Europe is the second higher and followed by the North America and Middle East. South America is the lowest of methanol demand in 2008 because of this country more dependent on production of biodiesel compare to methanol production.
2.2.3
CURRENT MARKET SITUATION
The global methanol industry is in the middleof the greatest capacity buildup in its history. Global methanol capacity is projected to double over a five year period starting in 2007. Methanol plant size is increasing as new technologies have emerged, significantly impacting economies of scale. While natural gas based capacity will still 24
dominate the industry, coal based methanol production is becoming increasingly significant as China invests heavily in this technology. China is also emerging as the overcome for major new methanol, including methanol demand into fuel and the first methanol to olefins units. Besides that, feedstock availability and alternate value play a key role in methanol industry dynamics. The impact of these and other issues are addressed in assessing the delivered cost structure of methanol over the next planning cycle. More than 240 individual methanol units were modeled to develop the 2009 industry production cash cost curve, another 20 new facilities which are estimateto come onstream over the next five years were modeled to develop the outlook for 2014.
2.3
FACTOR TO BE CONSIDERED IN SELECTING A SUITABLE PLANT LOCATION
The location of manufacturing industry is influenced by many factors which are labor supply, transport, site, raw materials, market, power supply, and government aid. The labor supply is defined about how easy it is to get workers. The transport can be many sources such as road, rail, sea, and air in order to move goods and workers. The site location is usually in the land flat, dry, and also required room for expansion. The site location mostly depends on raw materials. Usually, site location was built in country that has feedstock reserves. Otherwise, that country will import the feedstock from nearest country that has the feedstock using shipping or sea transport if from overseas or
using
pipeline
if
in
same
location
for
transporting
(http://www.doing business.org/).
In addition, raw materials were transport in bulky in order to reduce transport costs. The market survey is being close to customers also to reduce transport costs. Next, usually most modern industry use electricity as power supply. Besides that, government aid is about grants, loans, training, or other kinds of help (investment) for a site.
25
Commonly, market and labor supply are very important in service industries. Table 2.3 below shows the factor of physical, human and economic that needs in order to select the plant locations.
Table 2.3: Several factors considered for selecting the plant locations.
Physical
Human and Economic
Raw materials: The factory needs to be Labor: A large cheap labor force is required close to these if they are heavy and bulky for laborintensive manufacturing industries. to transport
High-tech industries have to locate where suitable skilled workers are available
Energy supply: This is needed to operate
Market: An accessible place to sell the
the machines in a factory. Early industries
products is essential for many industries:
were near to coalfields. Today, electricity
was used widely for supply energy.
those that produce bulky, heavy goods
that
are
expensive
to
transport
those that produce perishable or fragile goods
those that provide services to people
The market is not so important for other industries such as high-tech whose products are light in weight and cheap to transport. Such industries are said to be 'footloose'.
26
Physical
Natural routes:
Human and Economic
River valleys and flat
Transport:
A good transport network
areas were essential in the days before
helps reduce costs and make the movement
railways
of materials easier.
and
motorways
made
the
movement of materials easier.
Site and land: Most industries require
Cost of land: Greenfield sites in rural
large accessible areas of cheap, flat land
areas are usually cheaper than brown field
on which to build their factories.
sites in the city.
Capital: This is the money that is invested to start the business. The amount of capital will determine the size and location of the factory.
Government
policies:
Industrial
development is encourages in some areas and restricted in others. Industries that locate in Development areas may receive financial incentives from the government and assistance from the EU in the form of low rent and rates.
Source:http://www.doing business.org/
27
CHAPTER 3
COMPANY SET UP AND ORGANISATIONAL STRUCTURE
3.1
COMPANY SET-UP
The main site selections for production of methanol using natural gas are in China. This is because, based on the survey, the market demand for methanol in China very high compare other country. Besides that, the source of natural gas also large. Based on this factor, China was selected for set up company. These chapters are detail description about company registration in China, procedure to register and also discuss about main organization structure for these company. The main departments of this company are project manager department, manufacturing department, financial department and also research and development (R & D) department. In addition, China was selected due to the processfor registration and applies license take only 35 days by referring to figure 3.1 below. It showsthat the different countries need different time to start a business. For example, in Europe process to start new business lesser day compare to other country because the management for registration and applies license in Europe more efficient compare to other country like Latin America with
take
about
2
months
to
(http://www.doing business.org/).
28
complete
all
registration
procedures
Figure 3.1: Estimation days for starting business in different countries. Source: http://www.doing business.org/
3.2
PROCEDURES FOR SETTING-UP A COMPANY IN CHINA
3.2.1
Prepare and Apply for Project Proposal
The foreign enterprise need to propose a project proposal and submit it to the State or local development and reform department, or the technological renovation department for examination and approval. If approved, this foreign enterprise need to register their joint venture or wholly owned company in order to protect company name and trademark (Nobuyuki, 2009).
29
3.2.2
Prepare and apply for feasibility study
Next, the foreign enterprise and company in China need to work in team for feasibility study includes markets, capital, planned site, craftsmanship, technology, facilities, environment protection, raw material sales and purchases, economic yielding, proportion of local currency and foreign currency injection, infrastructure and many more and shall to submit it to the Statefor examination and approval. For example, both companies can prepare to discuss and sign a contract and other legal documents such as articles of associations (Nobuyuki, 2009).
3.2.3
Obtain a certificate of approval
After the feasibility study is approved, the company can submit the signed contract and the articles of associations to the Ministry of Commerce or local trade and economic bureaus for examination and approval. Once the approval is granted, a certificate of approval for the joint venture or wholly owned foreign enterprises is issued (Nobuyuki, 2009).
3.2.4
Apply for Business License
Starting from the date of receiving the certificate of approval for the set-up of a joint venture, the foreign enterprises shall apply to the industrial and commercial department for registration to get a business license. The date of the license is the date of the establishment of the wholly owned foreign enterprises(Nobuyuki, 2009).
30
3.3
LIST
OF
DOCUMENTS
TO
BE
SUBMITTED
FOR
COMPANY
REGISTRATION IN CHINA
The following documents should be submitted to the commercial authorities in setting up a foreign enterprises or contractual joint venture (Nobuyuki, 2009):
Application form (for reporting, recording, setting up a foreign-funded project)
Agreement, contract and articles of association
Notification of approval for name registration
Name list of the board of directors
Business licenses of each investors/shareholders
Evaluation license procedures related to city plan, land usage, environment protection water resources, and flood protection
3.4
Project application report
Other documents circulated by laws and regulations.
STARTING A BUSINESS IN CHINA
This part identifies the practical and legal obstacle an entrepreneur must overcome to incorporate and register a new firm in China.
The below provides a summary of the procedures, time, and budget required for setting up a standardized company. The summary is followed by additional countryspecific information on business registration requirements.
31
3.4.1
How to Register a Business in China
The fundamentals involved in establishing a business are fairly standard worldwide. However, the methods of processing and regulation are differences with other countries. China is a leading world economy and has established an inviting business environment for foreigners to start new businesses or relocate their existing businesses to China. The first thing company will need is a continuous business plan that will give all the details concerning about business and how to propose on operating it. There are wealth of sample business plans on line that can be used as a reference for formatting. Once company has a continuous business plan, company will be ready to establish company in China. Thing needs to register a business are business plan, initial contribution, business license, statistics or tax registration and social welfare insurance registration. The details are shown inFigure 3.2 as below:
Figure 3.2: Procedure process to start business in Beijing, China. Source:Nobuyuki, 2009. 32
3.4.1.1 Business Plan
Obtain a notice of pre-approval for the company name. The local Administration of Industry and Commerce (AIC) requires the company to fill out an application for the company name pre-approval. Applications can be picked up in person or downloaded from the AIC website. If an application is made in person, the name will be approved or reject on the spot. But if the application is mailed or faxed in, it will take up to 15 days
to
receive
the
company
application
rejection
or
approval
(http://www.doing business.org/).
3.4.1.2 Initial Contribution
Open a preliminary bank account. According to Chinese law, a new business must open a preliminary bank account and deposit an initial capital contribution in the amount of 20 percent of the proposed registered capital of the company. Once the contribution is deposited, it must be verified by a legally (established verification institute). The institute will issue a verification report verifying the company initial contribution (http://www.doing business.org/).
3.4.1.3 Approval Business License
Obtain a registration certificate with the state AIC. The registration certificate (also called a business license) is obtained by submitting a completed application along with the company name approval, office license or proof of office, articles of association, initial contribution verification report and any other documents requested by the agency. A decision on approval will be proceed within 15 days after the application is submitted. Upon approval, the company can have seal made after seeking permission from the police.
33
3.4.1.4 Business License
Obtain an organization code certificate. The Technology Supervision Bureau (TSB) will issue this certificate to the company. The company must apply for the certificate within 30 days of receiving the business license.
3.4.1.5 Statistics or Tax Registrations
Register with the Tax and local Statistics bureaus. Within 30 days of receiving the business license, the company must file a statistics registration with the local Statistics Bureau. The business license and organization code certificate are required for this filing. The company must also register with the state and local tax bureaus. This must be done within 30 days of receiving the application for registration. Copies of all business documents shall submit to the tax bureaus. The Business Tax Taxable Items and Rates in China were shown as table 3.1 below:
Table 3.1: Business Tax Taxable Items and Rates
Taxable items
Tax rates
1. communications and transportation
3%
2. construction
3%
3. financial and insurance businesses
8%
4. post and tale-communication
3%
5. culture and sports
3%
6. entertainment
5%-20%
7. services
5%
8. transfer of intangible assets
5%
9. sales of immovable properties
5%
Source:http://www.doing business.org/
34
3.4.1.6 Statistics or Tax Rate Regulation
Open a formal bank account for the business. The procedures involved with the establishment of a bank account and transferring funds into the account vary depending on the banking institution. The local and state tax offices must grant authorization to the company to purchase or print financial invoices and receipts. Once approved, purchase uniform invoices for the company.
3.4.1.7 Social Welfare Insurance Registration
Within 30 days of employing workers, the company must register with the local Career Service Center for recruitment registration. Application forms are available on line. The company will also have to register with the Social Welfare Insurance Center (SWIC) within the first 30 days for the payment of employee Social Insurance. Before register with SWIC, the company needsto settle up the company seal, business license and organization code certificate. After register with SWIC, the company is ready to conduct business in China (Nobuyuki, 2009).
3.5
ORGANIZATIONAL STRUCTURE
Organizational structure depends on the development of product.This organizational can be distinguished into functional organizations and project organizations. Functional organizations are organized according to technological disciplines. Senior functional managers are responsible for allocating resources. The responsibility for the total product is not allocated to a single person. Coordination occurs through rules and procedures, detailed specifications, shared traditions among engineers and meetings (ad hoc and structured).
35
A light-weighted matrix organization remains functional and the level of specialization is comparable to that found in the functional mode. What is different is the addition of a product manager who coordinates the product creation activities through liaison representatives from each function. Their main tasks are to collect information, to solve conflicts and to facilitate achievement of overall project objectives. Their status and influence are less as compared to functional managers, because they have no direct access to working-level people. A heavy-weighted matrix organization exists of a matrix with dominant the project structure and underlying the functional departments. The product manager has a broader responsibility. Manufacturing, marketing and concept development are included. The status and influence of the product manager, who is usually a senior, is the same or higher as compared to the functional manager. Compare with functional managers, because they have no direct access to working level people in a company. A project organization exists of product oriented on two flows which are project and teams. The project members leave their functional department and devote all their time to the project. They share the same location. The professionals are less specialized and have broader tasks, skills and responsibilities. The functional manager is responsible for the personnel development and the more detailed technology research in the functional groups. Companies can be classified to their organizational structures. Other variable companies can be classified to be the nature of the projects undertaken. The company can characterize projects by the number of employees needed to perform the tasks, or workload, and the number of tasks that are fundamentally different in nature (http://www.doing business.org/). The
following
four
categories
are
the
way
to
classify
organization
structure(Nobuyuki, 2009):
I.
One person is reasonable to the product that will be developed. This person shallhave all knowledge that needed to develop manufacturing and assembly. The development departments in companies that undertake these kinds of
36
projects are usually very small. If a company consists of more than one department, it is usually structured as a functional organization.
II.
Commonly, the development of product is fairly low complexity, but total work is high. These kinds of products are likely to be developed within one functional department for example research department.The light weighted matrix
structure
is
preferable
for
more
than
one
department
involved.Employees are involved on a full-time basis. Tasks may be performed concurrently. The sequence can be determined using the Design Structure Matrix.
III.
The product that will develop consist a lot of elements such as software, power supply, and mechanical structure. The engineering phase is one important element that involve in the production of product. The different type of disciplines performs different tasks. Generally, most of tasks have a low workload, means that, employees cannot work full-time on one project. It was because this can create a complex situation like a job shop situation in production logistics.However, it is not recommended to do a comparison between manufacturing and product development. It is good to study each step in product development especially in workloads because it can expose the ways to reduce variation and eliminate bottlenecks. In addition, more attention should give to bottlenecks because this trouble always occurs at the software development side of the project.
IV.
The product to be developed is more complexity due to the total work is high. So, employees need to work on a full-time basis.A project organization is the most suitable organizational structure for these kinds of products. Figure 3.3 shows the project organization for production methanol using natural gas that located in the Beijing, China.
37
Production of Methanol Using Natural Gas
Project Manager
Finance
Manufacturing
MohamadTarmizi
Norakasmaliza
Noor Azira
o
Market
o
overview,
estimations
survey and site
(initial
location
approval)
proposal o
o
Costing
equipment
up and
design and
organizational
specifications
Approval
o
o
o
Main
Company set-
structure o
o
o
Description of
R&DFauziana
o
Project
product and use
planning
Conceptual
and
design
scheduling
Process design
o
Economic analysis
Detailed costing
agencies and forms for various approval
Figure 3.3: The Organization Structure for the Methanol Production in China.
38
3.5.1
DESCRIPTION THE TASK
3.5.1.1 PROJECT MANAGER
The role of the Project Manager is to plan, execute, and finalize projects according to strict deadlines and within budget. This includes acquiring resources and coordinating the efforts of team members and third-party contractors or consultants in order to deliver projects according to plan. Project Manager shall play his own role to meet three elements in project which are specification, budget, and schedule. Besides that, he shall manage quality control throughout its life cycle.
The project manager has three ruleresponsibilities to the project. First, he needs to gainof resources and personnel. Second,he needs to deal with the obstacles that arise during the course of the project. Third, heneeds to practice the leadership ethicin order to get successful project. The example of project manager task is do companyset-up and finds the approval agencies.
Project managers should be aware of the strategic position of their own organization and the other organizations involved in the project. The project manager faces the difficult task of trying to arrange in a linethe goals and strategies of these various organizations to accomplish the project goals (Samuel, 2005).
3.5.1.2 FINANCE DEPARTMENT
This department responsible for the financial functions and activities of the Council and for the administration of the production company policy (Samuel, 2005).
39
3.5.1.3 MANUFACTURING DEPARTMENT
Manufacturing department works on the development and creation of physical artifacts, production processes, and technology. The manufacturing department has very strong overlaps with mechanical development, industrial development, electrical development, electronic department, computer science material management and operations management. Their success or failure directly impacts the advancement of technology and the spread of innovation. It is a very broad area which includes the design and development of products. Manufacturing department is just one aspectof the production industry. Manufacturing department enjoy improving the production process from start to finish (Samuel, 2005).
3.5.1.4 R & D DEPARTMENT
Research and developmentis a phrase that means different things in different applications. In the world of industry business, research and development is the phase in a product's life that might be considered the productsstarting. Therefore, basic science requires supporting the product'spossibility. If the science is lacking, it must be discovered by the research phase. If the science exists, the development phase is requiring to turning it (science) into a useful product(Samuel, 2005).
40
CHAPTER 4
APPROVAL AGENCIES
4.1
INTRODUCTION
Foreign investors can now determine an organizational structure according to the operations of their enterprises at their ownjudgment. The potential investors can approach the suitable government departments for a better understanding of the legal procedures involved in setting up a business in China. Firstly, investors may consult the People’s Republic of China’s embassies or
consultants stationed in their respective countries or regions. Alternatively, they can contact the local government who isin charge of the promotion of foreign trade and foreign investment. In manufacturing sector, in terms of investment potentialinterested foreign investorsare likely to choicethe industrial parks. Normally, these parks have a Department of Investment Promotion, which provides one-stop services from registration to first operations. Besides that, the potential investors can also choose to do an on-site visit. They can apply for an invitation letter. In this letter, they shall state the purpose of visiting, proposed period of stay and the planned investment projects. After receiving a letter of invitation, investors can proceed to the nearest embassy or consulate to apply for an entry visa to China.
41
Lastly, investors need to do a lot of paperwork in order to set up a business in China. So, one of the many firms has provided the relevant services to tide over this tedious process. However, investors should be well up to date with the related regulatory issuesbefore making any investment decisions. Whereas, investors also can choose any agencies or consulting firms to ensure decision-making processes is smoothly. But, it is advisable for investors to understand the procedures themselves (Nobuyuki, 2009).
4.2
AGENCIES THAT RESPONSIBLE TO APPROVE BUSSINESS
4.2.1
MINISTRY
OF
FOREIGN
TRADE
AND
ECONOMIC
COOPERATION (MOFTEC)
MOFTEC is responsible for the formulation of guidelines, policies, laws, regulations, reform plans and methods for administration in the foreign economic and trade sector. Next, it was in chargein the examination and announcement of foreign economic and trade sector, trade laws and regulations, the harmonization and linkage between China foreign economic, and safeguard measures. In addition, this ministry is responsible for the formulation of medium and long term plans for import and export, the development strategy for export commodities and market development and combining trade with industry, agriculture, the country's annual plan of foreign exchange revenue and expenditure in import and export trade to adjust the balance between import and export, and organizing the implementation of the plans. Besides, the foreign enterprises have to apply the approval of the MOFTEC to set up resident representative offices within the territory of People's Republic of China. On
42
the other hand, foreign enterprises are not allowed to set up their resident representative offices in the People's Republic of China and to conduct business activities permitted without the approval and registration by the MOFTEC (http://www.doing business.org/)
4.2.2
STATE ADMINISTRATION FOR INDUSTRY & COMMERCE (SAIC)
SAIC is one of the important government agencies under Ministries of Trade or Commerce for Industry and Commerce in China. The main mission of the SAIC is taking charge of market supervision or regulation and enforcing related laws through administrative means. As the government ministerial level agency, SAIC is directed immediately under the State of Council. It manages and coordinates local Administration for Industry & Commerce to create a regulated and harmonized market environment of fairness, justice and faithfulness for the coordinated socioeconomic development. The objective of SAIC is creating a regulated and harmonized market environment of fairness, justice and faithfulness for the coordinated socioeconomic development. Itincludesmaintaining market order and protecting the legitimate rights and interests of businesses and consumers, and coordinating local Administrations for Industry and Commerce (AICs) below provincial level. The operation of Administration of Industry and Commerce (AIC) is characterized by multi-level vertical management. The SAIC coordinates more than 3,000 AIC offices with a total staff of 550,000 people in China. This pyramid management is necessary for effective and efficient communication in a populous country of China. On the other hand, indirect communicating links yields information distortion and contributes to local protectionism. The main activities of SAIC can be categorized into the following four groups. Firstly to
draft and circulateguidelines, policies, laws, rules and regulations concerning
administration for industry and commerce, secondly to regulate market transactions, supervise market competition and investigate into illegal trade practices, thirdly take
43
charge of trademark registration and administration and lastly to carry out international cooperation and exchanges in areas related to the functions of SAIC.
As a government regulating agency, SAIC administers the following activities (http://www.doing business.org/):
1. Handle and administer the registration of all kinds of enterprises (including foreign-invested enterprises), organizations or individuals that are engaged in business activities as well as resident representative offices of foreign companies, examine and approvethe registration of business names, review, approve and issue business licenses and carry out regulation. 2. Regulate market transactions, supervise the quality of marketed goods, investigate and penalize illegal acts such as distribution of fake and substandard goods, so as to protect the legitimate rights and interests of both businesses and consumers. 3. Regulate the operation of brokers and brokerage agencies 4. Regulate contract performance, auctions and registration of chattel mortgage, investigate and penalize illegal practices such as contract frauds. 5. Regulate advertising activities, investigate and penalize illegal practices.
In addition, SAIC also supervises market competition and investigate into illegal trade practices such as monopoly, unfair competition, smuggling, selling of smuggled goods, pyramid selling and disguised pyramid selling.
44
4.2.3
STATE DEVELOPMENT AND REFORM COMMISSION
4.2.3.1 Examination and Approval Procedure
Before doing business in China, foreign investors are required to produce certain documents in order to go through the process smoothly. The procedures and required documents for direct investment are differentdepending on the form of business entities such as whether investors are Joint Ventures (JV) or Wholly-owned Foreign Enterprises (WOFE) and so on.
Commonly, three basic procedures that all foreign company has to follow which are (http://www.doing business.org/):
1. For projects under the encouraged and permitted categories with an investment exceeding US$100 million (including US$100 million) and projects under the restricted category with an investment exceeding US$50 million (including US$50 million), the report must be examined by the State Development and Reform Commission before submission to the Ministry of Commerce of the PRC for approval.
2. For projects under the encouraged and permitted categories with an investment exceeding US$500 million (including US$500 million) and projects under the restricted category with an investment exceeding US$100 million (including US$100 million), the report must be examined by both the State Development and Reform Commission and Ministry of Commerce before submission to the State Council for approval.
3. For projects not included in the above categories, the report has to be examined and subject to approval by provincial, autonomous region or municipalities authorities.
45
4.3
FORMS FOR VARIOUS APPROVALS
4.3.1
WHOLLY OWNED FOREIGN ENTERPRISES (WOFE)
WOFE in China is 100% owned by foreign companies. The objective is to allow the foreign firm to maintaincomplete control and direction of the operation. However, it can be more difficult at startup because the foreign firm may have no expertise in operating in China and little knowledge of the local area. WOFE is generally established as manufacturing or assembly operation for the purposes of export. The benefit of WOFE in China is low cost labor. A WOFE is not allowed to sell its products into the Domestic market. WOFE usually located in a Special Economic Zone where it can take advantage of special tax rates, improved infrastructure, and a variety of local suppliers and services which have grown in and around the zone in support of the Special Economic Zone. Also, the company needs to prepare several documents for setting up with WOFE (http://www.doing business.org/).
4.3.2
THE APPROVAL FOR SET UP WOFE
4.3.2.1 PRELIMINARY APPROVAL - PROJECT PROPOSAL The application procedure for setting up a WOFE is simpler. The project proposal will be prepared by the foreign investors and submitted directly to local authorities. The foreign investor may employa local agent to communicatewith the government. In order to employ the local agent, investor needs to sign an authorization letter stipulating the agent’s scope of services, responsibility and fees.
46
Generally, the authority will give an official reply within 30 days upon receipt of the proposal and other relevant documents. The approval or rejection letter will be issued to the foreign investor. If a favorable reply is received, the foreign investor can proceed to register the company’s name at the local AIC.
The report must contain information regarding the objectives of the WOFE, business scope, scale of operation, products to be produced, technology and equipment to be used, land area required, conditions and quantities of water, electricity, gas and other forms of energy resources required, and requirements for public facilities (http://www.doing business.org/).
4.3.2.2 FORMAL APPROVAL - ARTICLES OF ASSOCIATION
After the foreign investor receives a written reply from the relevant government authorities, a formal application supported by all the required documents should be filed with the local Ministry of Commerce at a county, municipal or provincial level. After receiving the formal approval, the foreign investor should apply to the Ministry of Commerce again for an approval certificate by presenting all the necessary documents. The required documents include the application letter for establishing the WOFE, articles of association, list of legal representatives (Board of Directors), the foreign investor’s legal papers and credit report, a list of materials to be imported, written
replies from the local approval authorities at county level or above, application for registration of the name of the enterprise approved by the provincial or municipal administration AIC, comments on the project by various government departments such as environmental protection, fire services, health and land administration. In the case where two or more foreign investors are involved, copies of the contracts signed by them should be submitted to the approval authority for their records.
47
4.3.2.3 BUSINESS LICENSE
Upon collection of the approval certificate, an application for a business license has to be filed with the provincial or municipal AIC within 30 days. The local AIC will issue the business license within 10 working days to projects that have passed the examination.Also, the date of the business license is issued will be considered the official date of the establishment of the enterprise. In order to obtain the business license,the WOFE has to finish up with procedures such as applying for an official seal and enterprise code, opening a bank account, and registering for tax payment and customs declaration with the local public security, technical supervision, taxation, customs, finance, foreign exchange administration, banking, insurance and commodity inspection departments.
4.3.3
SETTING UP REPRESENTATIVE OFFICES
A representative office may only appointfor activities in non-profit.Therefore, it may engage in any of the following functions such as conducting research and providing data and promotion materials to potential clients and partners, conducting research and surveying for its parent company in the local market, communicatewith local and foreign contacts in China on behalf of its parent company, acting as a coordinator for the parent company’s activities in China, making travel arrangements for parent
company representatives and potential Chinese clients and other non-profit making business activities. The document needs to prepare are (Nobuyuki, 2009):
48
4.3.3.1Choosing an Agent
The applicant choosesan agent, which must be a Foreign Enterprises Service Company (FESCO) in Mainland China. The local agent must be authorized by Ministry of Commerce of the PRC to handle representative office applications.
4.3.3.2 Submission of Applications
On behalf of the applicant, the Chinese agent will submit all the required documents to the provincial Ministry of Commerce for the handling of application procedures. The relevant documents include the application letter signed by the Chairman of the Board or General Manager, incorporation documents of the company, the previous year’s financial statement, an original bank reference letter attesting to the company’s
financial status, a letter of appointment of the chief representative signed by the Chairman of Board or the General Manager with the company’s stamp and the chief representative’s resume, copies of applicant identification, passport and photos, and a
copy of the hireagreement for the representative office and other documents that are requested by the authorities.
4.3.3.3 Business Certificate
After obtaining an approval permit from the provincial Ministry of Commerce, the foreign investor should proceed on timeto the provincial AIC for registration and obtaina business certificate.
49
4.3.3.4Post-registration formalities
Other formalities to be handled by the resident representative(http://www.doing business.org/): 1. Complete residence application procedures with local public security bureau by presenting the registration certificate, representative certificate and approval certificate. 2. Apply to open a bank account by presenting registration certificate and approval certificate to local foreign exchange administration. 3. Apply to Customs for permission to import office equipment, daily necessities and transport vehicles for use by the representative office and its personnel. 4. Complete tax payment registration procedure at local tax office. 5. Appoint Foreign Enterprises Service Company (FESCO) to recruit local staff.
50
CHAPTER 5
CONCEPTUAL DESIGN AND PROCESS DESIGN
5.1
PROCESS DESCRIPTION OF METHANOL PRODUCTION TECHNOLOGY
The modern production techniques convert natural gas (mostly methane) to synthesis gas (hydrogen and carbon monoxide), which is in turn converted to methanol. The general flow sheet is given in Figure 5.1 below:
Figure 5.1: General flow sheet for methanol production. Source: Steve, 2006.
51
A methanol plant with natural gas feed can be divided into three main sections, which are synthesis gas preparation (reforming), methanol synthesis, and methanol purification and one utility section. In the first part of the plant, natural gas is converted into synthesis gas. The synthesis gas reacts to produce methanol in the second section, and methanol is purified to the desired purity in the end process of the plant (Steve, 2006). Synthesis gas, a mixture of carbon monoxide, carbon dioxide and hydrogen, is first produced in a reformer. This is carried out by passing a mixture of the hydrocarbon feedstock and steam through a heated tubular reformer. The ratio of hydrogen and carbon in the syngas may need to be adjusted by purging excess hydrogen or adding carbon dioxide. It includes the use of auto-thermal reforming (ATR), either alone or in combination with a primary reformer, in which oxygen is mixed with the steam. The syngas is cooled and then compressed before being fed to the methanol converter. The methanol synthesis takes place in the presence of copper-based catalysts at 250260oC.
The
crude
methanol
is
recovered
and
purified
by
distillation
(William, 2003). There are three process sections may be considered to design of a methanol plant, and the technology may be selected and optimized separately for each section. The normal criteria for the selection of technology are capital cost and plant efficiency. The synthesis gas preparation and compression typically for about 60% of the investment, and almost all energy is consumed in this process section. Therefore, the selection of reforming technology is the very importance site. There are several reforming technologies are available for producing synthesis gas which are one-step reforming with fired tubular reforming, two-step reforming, and auto-thermal reforming (ATR). The raw materials required are methane (CH4), steam (H2O), and oxygen (O2). The primary byproduct is carbon dioxide (CO2).
52
5.1.1
ONE-STEP REFORMING
In this concept, synthesis gas is produced by tubular steam reforming without the use of oxygen. Today it is mainly considered for up to 2,500 MTPD plants and for cases where CO2 is contained in the natural gas or available at low cost from other sources. Synthesis gas that produced from this concept will typically contain 40% of surplus of hydrogen. This hydrogen is carried unreacted through the synthesis section only to be purged and used as reformer fuel. Then, there is addition of CO2 in this step in order to permit optimization of the synthesis gas composition for methanol production. Besides that, CO2 contains less expensive feedstock and also CO2 emission to the environment is reduced (Kirk, 1981).
5.1.2
TWO-STEP REFORMING
This reforming features a combination of fired tubular reforming (primary reforming) with oxygen-fired adiabatic reforming (secondary reforming). A process flow diagram for a plant based on two-step reforming is shown in figure 5.2 below.
53
Figure 5.2: Process flow diagram for production of methanol by two-step reforming. Source: Kirk, 1981.
By combining the two reforming technologies, it is possible to adjust the synthesis gas to obtain the most suitable composition (M = 2). The desired value of M depends on the natural gas composition. From the observation of two feed gas compositions, which are pure methane (CH4), and relatively heavy natural gas with the overall composition (CH3.6), the heavy gas CH3.6 requires more steam reforming and less oxygen compared to the pure methane (CH4).
54
5.1.3
AUTO-THERMAL REFORMING
This ATR features an oxygen-fired reformer. The design consists of a burner, a combustion zone, and a catalyst bed in a refractory lined pressure vessel. The burner provides mixing of the feed and the oxidant. In the combustion zone, the methane (CH4) and oxygen react in a turbulent diffusion flame. The catalyst bed brings the steam reforming and shift conversion reactions to equilibrium in the synthesis gas. The catalyst loading is optimized with respect to activity and particle shape and size to ensure low pressure drop and compact reactor design. The synthesis gas produced by auto-thermal reforming is rich in carbon monoxide, resulting in high reactivity of the gas. The module must be adjusted to a value of about 2 before the synthesis gas is suitable for methanol production. The adjustment can be done either by removing carbon dioxide from the synthesis gas or by recovering hydrogen from the synthesis loop purge gas and recycling the recovered hydrogen to the synthesis gas (Kirk, 1981).
55
5.2
BLOCK FLOW DIAGRAM OF METHANOL PRODUCTION
The block or rectangles used represent a unit operation. The blocks are connected by straight lines which represent the process flow streams which flow between the units. These process flow streams may be mixtures of liquids, gases and solids flowing in pipes or ducts, or solids being carried on a conveyor belt.
unit operations such as mixers, separators, reactors, distillation columns and heat exchangers are usually denoted by a simple block or rectangle
groups of unit operations may be noted by a single block or rectangle
process flow streams flowing into and out of the blocks are represented by straight lines
the direction of flow of each of the process flow streams must be clearly indicated by arrows
flow streams should be numbered sequentially in a logical order
unit operations should be labeled
the diagram should be arranged so that the process material flows from left to right with upstream units on the left and downstream units on the right
56
DESYNTHESIS GAS SMR+OBR
MSR
FEED
CRUDE
BYPRODUCT
SYNTHESIS GAS
PRODUCT
DISTILLATION COLUMN WATER
Figure 5.3: Simplified Natural Gas to Methanol Flow sheet
57
5.2.1
CHEMICAL REACTIONS
Methane, steam, and oxygen are catalytically reacted in steam methane reformer (SMR) and oxygen blown reformer (OBR) the synthesis gas production stage to produce hydrogen and carbon monoxide. The resulting synthesis gas is catalytically reacted in the methanol synthesis reactor (MSR) to produce methanol (Steve, 2006).
5.2.2
SEPARATIONS
The separation process involved the upstream process and downstream process. The upstream process is to removes water from the process. Besides that, downstream process is to removes methanol. Methanol is separated from the process via a twostage separation. Firstly, light gases are removed in a flash unit. Secondly, methanol is separated from carbon dioxide and any remaining water in a distillation column (Steve, 2006).
5.2.1
CHEMICAL REACTIONS
Methane, steam, and oxygen are catalytically reacted in steam methane reformer (SMR) and oxygen blown reformer (OBR) the synthesis gas production stage to produce hydrogen and carbon monoxide. The resulting synthesis gas is catalytically reacted in the methanol synthesis reactor (MSR) to produce methanol (Steve, 2006).
5.2.2
SEPARATIONS
The separation process involved the upstream process and downstream process. The upstream process is to removes water from the process. Besides that, downstream process is to removes methanol. Methanol is separated from the process via a twostage separation. Firstly, light gases are removed in a flash unit. Secondly, methanol is separated from carbon dioxide and any remaining water in a distillation column (Steve, 2006).
5.3
DETAILED FLOW DIAGRAM
5.3.1
STAGE 1: SYNTHESIS GAS PRODUCTION (William, 2003)
5.3.1.1 Natural Gas Furnace (F-100)
A fired furnace is used to preheat the natural gas which being fed at feed stream to the steam methane reformer (SMR). The purpose of heating is to minimize the rate of reaction.
58
5.3.1.2 Steam Methane Reformer (R-100)
Stream methane reforming was selected for synthesis gas production because it is well understood process. Moreover, SMR are capable to produce synthesis gas with the desired H2 /CO ratio.
5.3.1.3 Oxygen Blown Reformer (R-200)
Since the operating of SMR at an optimized conversion, the production of carbon dioxide is minimized. The OBR is used to completely consume the methane fed to the SMR.
5.3.2
STAGE 2: UPSTREAM PROCESSING (William, 2003)
5.3.2.1 Steam Generator (E-100)
The excess heat in the OBR effluent is used to produce the steam by exchanging heat with the OBR effluent and process water (utilities). This also helpful to cool the synthesis gas so that water can be flashed out downstream.
5.3.2.2 Synthesis gas Cooler (C-100)
The synthesis gas is cooled to the optimum downstream flash conditions for water removal.
59
5.3.2.3 Flash Unit (U-300)
Water is flashed out of the syngas stream to optimize downstream product separations. The liquid water is converted to steam by exchanging heat with the OBR effluent thus reducing the amount of utility water required.
5.3.2.4 Water Mixer (M-200)
The recovered liquid water and make-up utility water are mixed in the water mixer before being converted to stream.
5.3.2.5 Water Make-up Pump (P-100)
The utility water must be pumped to equivalent the operating conditions of the recovered liquid water before being fed into water mixer.
5.3.2.6 Synthesis gas Compressor (CMP-200)
The synthesis gas process stream is carried to the optimal operating temperature and pressure of the MSR using an inter-stage compressor. The advantage of introducing the inter-stage compressor is excellent temperature control and is an efficient method for gas to be compressed.
5.3.3. STAGE 3: METHANOL PRODUCTION (William, 2003)
5.3.3.1 Feed Splitter (S-100)
The synthesis gas feed is equally split to each methanol MSR unit.
60
5.3.3.2 Methanol Synthesis Reactor-MSR (R-300)
The methanol synthesis reactor is included of two parallel tube plug flow reactors which operating in parallel in purpose to optimize the residence time through each. These reactors are operated as heat exchangers to maximize heat transfer characteristics and ensure enough temperature control.
5.3.3.3 Product Mixer (M-300)
The effluent from each MSR unit is mixed before being fed to the methanol processing stage.
5.3.4
STAGE 4: DOWNSTREAM PROCESSING (William, 2003)
5.3.4.1 Product Cooler (C-200)
The methanol product stream must be cooled for optimal downstream separations.
5.3.4.2 Synthesis gas Separator (U-200)
Light gases are removed from the methanol product stream to reduce the required downstream separation equipment duties.
61
5.3.4.3 Depressurizer (V-100)
The pressure of methanol product stream must be reduced to the final product specification.
5.3.4.4 Distillation (D-100)
Carbon and water are major contaminants in the methanol product stream so it must be removed to produce methanol with the specified product purity.
5.3.4.5 Final Product Mixer (M-100)
Methanol from the two distillation liquid effluent streams is combined to produce the final product.
5.3.4.6 Final Product Cooler (C-300)
The mixed distillation effluent is cooled to the final product specification temperature.
62
CHAPTER 6
MAIN EQUIPMENT DESIGN AND SPECIFICATIONS
6.1
REACTORS
6.1.1 STEAM METHANE REFORMER (R-100)
The steam methane reformer is designed to generate syngas via Equation below.
CH 4+ H 20===>C 0 +3 H 2∆H298=206kJ / mole
This reaction is endothermic. Therefore, during its operation it will be heated via the combustionof natural gas. If we assume that 90% of the combusted energy is transferred to the optimized R-100, it will require 13.1 m3/s of combusted natural gas. Furthermore, catalyst (Raschig ring, 5/8"L x 5/8" D OD, with 3/16" hole) with a void fraction of 0.45 will be used to increase the reaction rate.
The optimization goals for the R-100 were to minimize carbon dioxide production (as itpresented significant downstream separation issues and kinetic data was not available for modeling its conversion to methanol). It is also to maximize the production of syngas through thevarying of temperature, pressure, and the steam-tomethane ratio.
63
6.1.2
OXYGEN BLOWN REFORMER (R-200)
The OBR is designed to:
Lower the H2-to-CO ratio
H2+ O2===>H2O
∆H298 = - 242kJ /mole
Partially oxidize methane
CH 4+ 0.5O2===>CO+ 2 H 2
∆H298 = -36kJ mole
In optimizing this reactor our goal was to adjust the hydrogen to carbon monoxide ratio produced in the SMR and consumes remaining methane. As demonstrated previously, it is not beneficial to consume large amounts of methane in the R-100 reactor as this also results in significant carbon dioxide production. After optimizing this unit, we determined that the cost of changing any of the parameters from the R100 reactor to this reactor were large as compared to any conversion benefit we produced.
For example, the cost of cooling the OBR feed was greater than the benefit produced by the small increase in conversion in the R-200. Thus we operated R-200 at the same parameters as the R-100.
64
6.1.3
METHANOL SYNTHESIS REACTOR (R-300)
6.1.3.1 KINETICS
CO + 2H2===>CH3OH
∆H298 = -90.5kJ /mole 298
Kinetic data for the proprietary catalyst was made available to us in the form of the dependence on the rate of production of methanol on hydrogen, carbon monoxide, and methanol partial pressures. Thus in modeling the MSR, only these components can be taken into account.
6.1.3.2 MAXIMUM CONVERSION
Ever present in the optimization of the MSR is the trade-off between the maximum thermodynamically
attainable
conversion
and
the
kinetic
reaction
rate.
Thermodynamically the maximum conversion is a function of temperature, pressure, and reactant ratios, which according to Le Châtelier’s principles will favor low temperature, high pressure, and the excess of any one reactant, while the reaction rate favors high temperatures. Thus to pick the proper operating conditions we need to know just how this equilibrium constant behaves as a function of its inputs. Table 7.1 represents the maximum conversion as a function of H2-to-CO ratio and temperature.
65
Table 6.1 : Maximum conversion as a function of H 2-to-CO ratio and temperature.
Temperature
Pressure (MPa)
H2:CO ratio
(K)
Maximum conversion
400
7
2
0.95
400
7
5
0.99
400
4
2
0.92
450
7
2
0.83
450
7
5
0.99
450
4
2
0.75
500
7
2
0.61
500
7
5
0.87
500
4
2
0.46
It is evident that of the three variables, pressure has the lowest effect on the maximumconversion. However, pressure has a large effect on the cost of the reactor, thus a low operating pressure was chosen. At 500K, a stoichiometric H2:CO ratio, and 7 MPa, the maximum conversion is 0.46. By changing this ratio to 5, the maximum conversion increases to 0.87. Thus to overcome a thermodynamic barrier, excess hydrogen should be used. This becomes important in the downstream processing section where the use of a recycle stream is considered.
66
6.1.3.3 CATALYST
Thermal degradation of the catalyst occurs at 500K. Given that the reaction in the MSR is highly exothermic, the reactor requires strategic cooling to prevent the buildup of thermalenergy inside the reactor. This will solve the problem of heat buildup along the length of thetubes, but the temperature profile across the diameter is another issue. Thus the task becomes determining the proper tube diameter such that the tube thermal resistance is negligible as compared to the fluid phase resistance. In such a condition the temperature gradient across the diameter of the tube may be considered zero.
To do this we will test the Biot number, where the fluid phase resistance is approximated by a shell side heat transfer coefficient and the tube/catalyst thermal resistances by their thermal conductivities. When the Biot number is much less than one, we may assume no thermal gradient across the diameter. With a diameter of 2 inches we found the Biot number to be 0.3, thus this was the diameter used. In addition the industry standard for tube length was found to be 20 ft12, therefore the MSR pipes are specified as 20 ft in length and 2” inches in diameter. Steel pipes that can withstand a pressure of 7MPa were found in Seider to be Schedule 80 with a nominal pipe size of 2.38-in. O.D. and
67
1.939-in I.D.
6.2
UPSTREAM PROCESSING
Figure 6.1: STAGE 2 - Upstream processing.
6.2.1 WATER REMOVAL
The OBR effluent is at 885°C and 2 MPa. The methanol reactor temperature cannot exceed500K. The reactor pressure should be minimized and therefore is specified at the accepted lowerrange value of 7 MPa. Thus the OBR stream requires compression and cooling to achieveoptimum MSR operational conditions. As we implemented this design, it was noted that the cooledOBR exit stream contained condensed water. This natural partitioning of components presents aunique opportunity in separations design. We propose separating all water from the systembefore the stream enters the methanol reactor. This procedure has the advantage of: 68
1. Decreasing molar flow rates in our system, thus decreasing capital costs with respect to equipment size. 2. Allows for downstream separations to only be concerned with the separation of methanolfrom syngas rather than the separation of methanol from water. This is useful given that the separation of methanol from water was found to require a high a capital cost and high operating utilities (Appendix II). 3. The act of cooling the stream is sunk, in that the cost of cooling the stream is a necessity regardless of if we decide to separate the water or not. Thus any action that takes advantage of sunk costs will benefit the profitability of the plant. 4. The absence of water will reduce the competition for sites on the methanol catalyst thus increasing the reaction rate. (This would be a real world effect, as our kinetic model does not take into account water vapor concentration).
6.2.2 CMP-200
Given that the feed temperature into the MSR is very sensitive (as described in the R100section), an inter-stage compressor (CMP-200) is used. The inter-stage compressor has theadvantage of better temperature control, and it will also decrease the energy required to compress the gases. We designed to compressor as a five-stage compressor with a total cooling duty of11.6 MW.
6.2.3 C-100
The C-100 will be sized according to the procedure outlined in Appendix I.1. In all our heat exchangers the pipes are 16 feet long, have 1 inch triangular spacing, ¾-inch O.D., 0.56-inch I.D., a 1 inch pitch, and are Schedule 80. Furthermore all heat exchangers have a 1 – 2 shell and tube configuration. Using this configuration we found that the C-100 exchanger would require 728 tubes with a 31-inch I.D. shell. The E-100 will require 302 tubes with a 21.75-inch I.D. shell. 69
6.2.4 V-200
As with all the flash units, the V-200 is sized according to the procedure outlined in AppendixI.2. Using this technique we found that this unit will be 14.5 feet tall and have a diameter of 12 feet.
6.3 DOWNSTREAM PROCESSING
Figure 6.2 STAGE 4 - downstream processing.
70
The MSR effluent is 66-wt% methanol. The minimum product purity specification is 99.75-wt%methanol. Downstream separation processing is required to achieve the production quality target. In reality, when higher alcohols, fuel oils and waxes are present, gases will first be separated from the crude methanol product by distillation in a topping column. Water, fuel oils and methanol will then be separated from methanol in a refining column2.
In our simulation the MSR effluent exits at 374K and 7MPa. It must first be cooled with the goalof causing methanol to liquefy, followed by a flash unit to separate it from the syngas. When this technique was implemented we found that not only does methanol liquefy, but so doescarbon dioxide (this was verified upon checking the phase diagram for carbon dioxide). It is because the next step of our separations involves the use of a flash unit to remove syngas from methanol, we initially thought this to be an inefficient separation train (as the carbon dioxide syngas was still mixed with the methanol stream).
6.3.1 CO2 REMOVAL
To rectify this issue we used an expanded to drop the pressure and then attempted flashing thestream. Not only did carbon dioxide still appear in the liquid stream, possibly as a dissolved gas,the flash unit caused 25% of our methanol product to exit the vapor stream. We would suggest using a partial condenser in the vapor stream of the flash unit to recover this methanol. Several temperature and pressure variations were attempted to address the carbon dioxide issue. A flash unit should be able to separate carbon dioxide frommethanol at standard temperature and pressure.
71
6.3.2 RECYCLE & CONVERSION
The next issue is how to handle the vapor stream in the distillation unit. Flowsheets with recycle loops that had been working for days would suddenly stop working and not converge. As stated in the methanol synthesis reactor section, the only way to obtain acceptable conversions at high temperatures and high pressures is with high hydrogen-to-carbon monoxide ratios. Thus the SMR and OBR were optimized to obtain a hydrogen-to-carbon monoxide ratio of 3.5, which resulted in complete conversion of carbon monoxide within the methanol reactor. While using this technique consumed most of our carbon monoxide, there was a significant amount of hydrogen in the vapor stream. This stream is then sent to a furnace to recover energy.
6.3.3 FLASH VESSEL (U-300)
The U-300 was sized to be 16.45’ high and have a diameter of 9.5’.
6.3.4 COOLERS (C-200, C-300)
The C-200 will require 728 tubes with a 31-inch I.D. shell. The C-300 will require 82 tubes with a 12-inch I.D. shell.
6.3.5 DISTILLATION (D-100)
We were able to optimize the D-100 with 6 stages, 18-inch tray spacing, a distillate to feed ratio of 0.15, 10.6 MW condenser duty, and 26.9 MW reboiler duty.
72
6.4
METHANOL STORAGE
Methanol storage is needed for constant operation in adjoining facilities in the case of scheduled(or unscheduled) plant downtime. The project managers specified that our storage contingency needs to be 10 days. Based on this specification, we need to store 63,211m3 of methanol. Assuming this volume of methanol can be set in 20 tanks, we can size each tank using: (1/20) x (63.211 m3) = πr 2h h/D = 3
When we solve these equations we find that each of our 20 storage tanks needs to have the following dimensions:
R = 7.98m
===> r = 26.19 ft
H = 47.88m ===> h = 157 ft
73
CHAPTER 7
PROJECT COSTING
7.1
EQUIPMENT COST SUMMARY
7.1.1
Pump Costs
A centrifugal pump, of the radial type, was chosen to pump liquid water to the Steam Methane Reformer based upon the volumetric flow rate and head required12. The cost of the pump was obtained using the flow rate and head as the sizing factors for obtaining a base cost.
Furthermore, cast iron was assumed to be the appropriate material for the construction of the pump.
7.1.2
Compressor Costs
A centrifugal compressor was chosen based upon the horsepower required to compress the gas to the required pressure12. The cost of the compressor was obtained using the horsepower as the sizing factors for obtaining a base cost. Furthermore, carbon steel was assumed to be the appropriate material for the construction of the pump, and a steam turbine (80% efficiency) was used to take advantage of the utilities present at the plant. Also, the compressors were assumed to be 75% efficient12.
74
7.1.3
Furnace Costs
The furnace was assumed to be a fired heater, and its cost estimation is based upon heat duty as the sizing factor. Stainless steel construction is assumed to withstand a pressure of 500 psig. The furnace was assumed to be 75% efficient12.
7.1.4
Storage Tank Costs
Operating specifications require storage of 10 days supply of methanol. Hence, storing 16.7 million gallons of methanol requires 17 tanks with a one million gallon capacity each.
7.1.5
Reactor Costs
The Steam Methane Reformer was sized as a heater, and a cost estimate was obtained based upon it heating value with a 75% efficiency12. Furthermore, vessel inside this reactor was also considered in the cost analysis. The Oxygen Blown reformer and Methanol Synthesis reactors were sized as pressure vessels12, with pressure being the sizing factor.
7.1.6
Heat Exchanger Costs
All heat exchangers in the design are shell and tube heat exchangers where the sizing factor is the surface area of heat transfer. The heat transfer area and heat duty were obtained from Aspen for the reactor E-100. From this, the heat transfer coefficient was calculated. Using this calculated heat transfer coefficient, and heat duties obtained from reactors, approximate heat transfer surface areas were found for other three heat exchangers for cost determination. 75
7.1.7
Separation Vessel Costs
Units U-200 and U-300 were sized as flash units, and cost was estimated based on the costing method for pressure vessels12. While the cost estimate for distillation column, unit D-100, was obtained using the same method, a slightly different procedure is followed based on Seider’s approach. Carbon
dioxide is the main impurity in our methanol product, which can be removed by a flash unit. Implementation of this flash unit was difficult in Aspen, hence, a distillation was column was necessary for simulation purposes. The distillation column was sized as other flash units for costing purposes.
7.2
FIXED CAPITAL INVESTMENT SUMMARY
7.2.1
Bare Module Costs
A detailed cost analysis for each unit in the process flow diagram was performed based upon methods presented by Seider. Assumptions made in the cost analysis are listed under the section for specific units, while the cost of each unit is presented in Table 7.1. A detailed cost analysis with specific procedures and correlations are presented in Appendix IV.
76
Table 7.1: Descriptions & estimated costs of specific units in the process flow diagram.
UNIT TYPE
DESCRIPTION
1. Furnaces F-100 2. Reactors R-100 R-100 R-200 R-300 3. HEX E-100 C-100 C-200 C-300 4. Pumps P-100 P-spare 5. Separators U-200 U-300 D-100 6. Compressors CMP-200 7. Storage Tanks Floating Roof
7.2.2
Furnace SMR-Furnace SMR-Vessel OBR MSR Heat Exchanger Cooler Cooler Cooler Pump Spare Pump Flash Unit Flash Unit Distillation Compressor Storage Tanks
BASE NO. OF COST/UNIT ($) UNITS $ 4,635,643 1 $ 17,237,109 1 57,592,250 1 40,389,195 1 16,392,569 10 $ 344,960 1 7,243,525 1 8,948,014 1 182,177 1 $ 17,237,109 1 17,237,109 1 $ 698,198 1 276,663 1 581,086 1 $ 46,311,255 1 $ 430,588 17 TOTAL
TOTAL COST ($) $ 4.635,643 $ 17,237,109 57,592,250 40,389,195 163,925,690 $ 344,960 7,243,525 8,948,014 182,177 $ 17,237,109 17,237,109 $ 698,198 276,663 581,086 $ 46,311,255 $ 7,319,479 $355,978,579
Direct Permanent Investment & Total Capital Investment
The initial estimate of Direct Permanent Investment (DPI) was calculated to be $511.5 million. Adding 30 percent contingency, site and facility preparation, waste removal cost, utility allocation cost, startup costs, land costs, and working capital, the Total Capital investment (TCI) will be $779.5 million. Detailed calculations were performed based on the Guthrie12 method, and can be found in Appendix V.
77
7.3
COST SHEET
The cost sheet was determined by allocating appropriate costs for each category. These categories encompassed utilities, operation overhead, maintenance, labor, property taxes and insurance, depreciation, and general expenses. The total cost of manufacture was determined by adding up all categories of manufacturing cost. The total production cost was determined by adding the total cost of manufacture with general expenses. The sales revenue was determined by knowing the output product flow rate and multiplying it by its selling price; unit conversions were used. The cost sheet is an annual economic analysis sheet.
Table 7.2: Summary plant costs and operations.
Cost Factor Feedstocks (raw materials) Natural gas Boiler feed water make-up Oxygen Total
Annual Cost $2,802,866 $364,001 $42,395,868 $45,562,735
Utilities Electricity Cooling water, 90F, 65 psig (CW) Chilled cooling water, 60F Natural gas (fuel), 90F, 75 psig 1050 BTU/SCF Total
$7,634,955 $7,769,894 $90,009,785 $19,211,641 $124,626,275
Operations (Labor-related) (O) Direct wages and benefits (DW&B) Direct salaries and benefits Operating supplies and services Control laboratory Total Maintenance (M) Wages and benefits (MW&B) Materials and services Total
$11,260,443 $18,767,405 $30,027,488
Operating Overhead
$11,968,059 78
$524,160 $104,832 $4,504,177 $78,624 $5,211,793
Property Taxes and Insurance
$225,208,854 (entire plant life)
Depreciation (D)
$665,018,119 (entire plant life)
Cost Of Manufacture (COM)
$183,764,004
Total General Expenses (GE)
$10,764,720
Total Production Cost (C)
$194,528,724
Sales Methanol Product
$538,236,002
Total Sales
$538,236,002
79
CHAPTER 8
PROJECT PLANNING AND SCHEDULING
8.1
PROJECT PLANNING
Project planning is a part of project management, which relates to the use of schedules such as Gantt charts to plan and subsequently report progress within the project environment. Initially, the project scope is defined and the appropriate methods for completing the project are determined. Following this step, the durations for the various tasks necessary to complete the work are listed and grouped into a work breakdown structure. The logical dependencies between tasks are defined using an activity network diagram that enables identification of the critical path.
Then the necessary resources can be estimated and costs for each activity can be allocated to each resource, giving the total project cost. At this stage, the project plan may be optimized to achieve the appropriate balance between resource usage and project duration to comply with the project objectives. Once established and agreed, the plan becomes what is known as the baseline. Progress will be measured against the baseline throughout the life of the project. Analysingthe progress and comparedto the baseline is known as earned value management.
80
DESIGN PROJECT PLANNING GANTT CHART FOR PROJECT PRODUCTION OF METHANOL W02
W03
W04
L U J 6 1
L U J 3 2
L U J 0 3
L U J 2 1
L U J 9 1
L U J 6 2
–
–
–
1
ACTIVITIES Project Title
2
Description of product and use
3
Market overview, survey and site location proposal
4
Company set-up and organizational structure
5
Approval agencies and form for various approval
7
Process design
G U A 2 0
W08
W09
G U A 3 1
G U A 0 2
G U A 7 2
P E S 3 0
P E S 9 0
P E S 9 1
G U A 9 0
G U A 6 1
G U A 3 2
G U A 0 3
P E S 6 0
P E S 0 1
–
–
–
–
W010
W011
–
–
W12
P E S 4 2
–
P E S 0 2
W13
W14
W15
T C O 1
T C O 8 0
T C O 5 1
P E S 7 2
T C O 4 0
T C O 1 1
–
–
Main equipments design and specifications
Detailed costing
11
Project planning and scheduling
12
Economic analysis
K A E R B R E T S E M E S D I M
Project completion and handover
Figure 8.1: Design project planning gantt chart for project production of methanol
81
8.2
–
Cost estimations (initial approval)
10
13
–
W07
Conceptual design such as block diagram, equipment and other
9
G U A 6 0
W06
6
8
W05
SCHEDULING THE PROJECT
Before a project schedule can be created, a project manager should typically have a work breakdown structure (WBS), an effort estimate for each task, and a resource list with availability for each resource. If these are not yet available, it may be possible to create something that looks like a schedule, but it will essentially be a work of fiction. When preparing a schedule estimate, consider that transition between activities often takes time. Organizations or resources outside your direct control may not share your sense of schedule urgency, and their work may take longer to complete. Failure to meet schedule goals is most often due to unrealistic deadlines, passive project execution, unforeseen problems, or things overlooked in the plan. The project schedule is simply the project plan in an altered format. It is convenient form for monitoring and controlling project activities. Actually, the schedule itself can be prepared in several formats. The most common formats are by using Gantt charts
8.2
SCHEDULING THE PROJECT
Before a project schedule can be created, a project manager should typically have a work breakdown structure (WBS), an effort estimate for each task, and a resource list with availability for each resource. If these are not yet available, it may be possible to create something that looks like a schedule, but it will essentially be a work of fiction. When preparing a schedule estimate, consider that transition between activities often takes time. Organizations or resources outside your direct control may not share your sense of schedule urgency, and their work may take longer to complete. Failure to meet schedule goals is most often due to unrealistic deadlines, passive project execution, unforeseen problems, or things overlooked in the plan. The project schedule is simply the project plan in an altered format. It is convenient form for monitoring and controlling project activities. Actually, the schedule itself can be prepared in several formats. The most common formats are by using Gantt charts and PERT/CPM networks.
82
8.2.1
GENERAL SCHEDULING OF THE PROJECT
Table 8.2: A Set of Project and Precedence’s
Activity
Description
Predecessors
11
Project planning
1
Project title
11
2
Description of product
1
3
Market overview, survey and site location
2
4
Company set-up
11
5
Approval agencies
4
6
Conceptual design
3
7
Process design
6
8
Cost estimations
5,7
9
Main equipments design
8
10
Detailed costing
9
12
Economic analysis
10
13
Project completion
Project Finish
………..
83
Figure 8.2: A Complete AON (activity-on-arrow) network from Table 8.1
84
Activities 11 (project planning) do not have preceding activity since they depend on none of the other activities. This project assume that activities 1 (project title) and 4 (company setup) are preceded by activity 11 (project planning). This is because, after project planning, title of project and company set-up must run together to ensure the project can run smoothly. Activities 1 (project title) precedes task 2 (description of product) and activities 4 (company set-up) precedes activities 5 (approval agencies). Activities 3 (market overview) and 5 (approval agencies) cannot begin until the completion of activity 2 and 4 respectively. Activities 6 (conceptual design) cannot start until Activities 3 (market overview, survey and site selection) is finish and activity 7 (process design) can start after conceptual design s uch as block diagram are prepared. Activities 8 (cost estimations) has two predecessors, activities 7 and 5. Activities 8 (cost estimations) precedes activity 9 (main equipment design) and after finish design of main equipment, activities 10 (detailed costing) can be start calculate. After get the detailed cost of project, activities 12 (economic analysis) can be start for analyze before the project completing and handover to the client.
Activities 11 (project planning) do not have preceding activity since they depend on none of the other activities. This project assume that activities 1 (project title) and 4 (company setup) are preceded by activity 11 (project planning). This is because, after project planning, title of project and company set-up must run together to ensure the project can run smoothly. Activities 1 (project title) precedes task 2 (description of product) and activities 4 (company set-up) precedes activities 5 (approval agencies). Activities 3 (market overview) and 5 (approval agencies) cannot begin until the completion of activity 2 and 4 respectively. Activities 6 (conceptual design) cannot start until Activities 3 (market overview, survey and site selection) is finish and activity 7 (process design) can start after conceptual design s uch as block diagram are prepared. Activities 8 (cost estimations) has two predecessors, activities 7 and 5. Activities 8 (cost estimations) precedes activity 9 (main equipment design) and after finish design of main equipment, activities 10 (detailed costing) can be start calculate. After get the detailed cost of project, activities 12 (economic analysis) can be start for analyze before the project completing and handover to the client.
85
WORK BREAKDOWN STRUCTURE Objective: Production of Methanol from Nature Gas Chemical Production Project
project manager
Manufacturing finance
project budget company set-up project planning
R&D
contractor
supplier
(input) (process) (output)
material
plant hire labour
Figure 8.3: Work breakdown structure 86
CHAPTER 9
ECONOMIC ANALYSIS
9.1
PROFITABILITY MEASURES
9.1.1
Return on Investment (ROI)
The return on investment calculation is as follows:
product research process research
CHAPTER 9
ECONOMIC ANALYSIS
9.1
PROFITABILITY MEASURES
9.1.1
Return on Investment (ROI)
The return on investment calculation is as follows:
Where t = U.S. federal tax rate of 38%, S = total sales revenue on an annual basis, C= Cost of production on an annual basis, and CTCI = Total capital investment. All variables are in U.S.dollars. The following calculation was performed,
and so the final ROI is roughly 27.4 %.
87
9.1.2
Net Present Value (NPV)
To evaluate the net present value of a proposed plant, its cash flows are computed for each year of the projected life of the plant along with construction and startup phases. The sum of all the discounted cash flows equals the net present value. The following table provides the NPV and CF values at 10% interest rate for the life of the plant, which was 15 years.
88
Table 9.1: Calculation of Cash Flows and NPV Year
MACRS
f CTDC
CWC
D
CExcl.Dep
S
Net Earnings
Cash Flow
NPV
2009
20.00%
$665,018,119
$26,926,877
$133,003,624
$183,764,004
$538,236,002
$137,310,392
$421,630,980
$421,630,980
2010
32.00%
$212,805,798
$183,764,004
$538,236,002
$87,833,044
$300,638,842
$273,308,038
2011
19.20%
$127,683,479
$183,764,004
$538,236,002
$140,608,882
$268,292,361
$221,729,224
2012
11.52%
$76,610,087
$183,764,004
$538,236,002
$172,274,385
$248,884,472
$186,990,588
2013
11.52%
$76,610,087
$183,764,004
$538,236,002
$172,274,385
$248,884,472
$169,991,443
2014
5.76%
$38,305,044
$183,764,004
$538,236,002
$196,023,512
$234,328,555
$145,499,597
2015
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$124,055,925
2016
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$112,778,114
2017
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$102,525,558
2018
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$93,205,053
2019
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$84,731,866
2020
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$77,028,969
2021
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$70,026,336
2022
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$63,660,305
2023
$183,764,004
$538,236,002
$219,772,639
$219,772,639
$57,873,005
The NPV was $1,361,773,040 across the plant lif e of 15 years. 89
9.1.3
Cash Flows (CF)
During the years of plant construction, the CF for a particular year is as follows:
For the after-tax earnings plus depreciation CF for a particular year the following equation was used:
(ref)
The above equation is used for actual years of production not construction. The following table provides the CF for all 15 years of the plant. Notice that during the construction years the CF is negative meaning those were the years of mechanical design and plant construction.
9.1.3
Cash Flows (CF)
During the years of plant construction, the CF for a particular year is as follows:
For the after-tax earnings plus depreciation CF for a particular year the following equation was used:
(ref)
The above equation is used for actual years of production not construction. The following table provides the CF for all 15 years of the plant. Notice that during the construction years the CF is negative meaning those were the years of mechanical design and plant construction.
90
Table 9.2: Annual Cash Flow
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
9.1.4
Year of operation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Cash flow ($421,630,980) $300,638,842 $268,292,361 $248,884,472 $248,884,472 $234,328,555 $219,772,639 $219,772,639 $219,772,639 $219,772,639 $219,772,639 $219,772,639 $219,772,639 $219,772,639 $219,772,639
Depreciation Schedule (MACRS)
Our design managers provided the schedule of depreciation to us. The following table provides the total amount of depreciation with a class life of 5 years.
91
Table 9.3: Depreciation Schedule
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Year of Operation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
MACRS 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% -
D($/yr) $133,003,624 $212,805,798 $127,683,479 $76,610,087 $76,610,087 $38,305,044 -
Taxes Saved ($/yr) $50,541,377 $80,866,203 $48,519,722 $29,111,833 $29,111,833 $14,555,917 -
Total Taxes Saved = $252,706,885 Total Depreciation = $665,018,119 Present Value of Income Tax Savings (Total) = $195,408,232
9.1.5
Investors Rate of Return (IRR)
Using the provided spreadsheet the IRR was roughly 58%. The IRR is also known as the discounted cash flow rate of return (DCFRR). This interest rate or discounted rate gives a net present value of zero and since it is positive this means that building the plant will be profitable. The largest IRR is the most desirable, which is the case here. Recall that our NPV value was large and positive.
92
CHAPTER 10
PROJECT CLOSURE
10.1
INTRODUCTION TO PROJECT CLOSURE
Project closure is the final phase of Project Life Cycle. The purpose is to detail formal approval and an approved process for ending the project and handing it off to customer. When project has been closed in advance, the project closure should take place at the end of the project. It is important to close out the project in order to prevent the project from moving beyond its original scope and cost.
The objectives of project closure: 1. Accept project’s product by sign-off from customer, project sponsor. 2. Conduct lessons learned session or workshop. 3. Recognize outstanding work. 4. Celebrate the achievements of project team. 5. Pay out the resources (staff, facilities, automated systems). 6. Complete and documents all final project records. 7. Conduct contract closure or related inspections.
The project closure phase is finished when the end of project report has been approved.
93
10.2
PROJECT DUAL CLOSURE PROCESS
PROJECT CLOSURE PHASE
Administrative Closure
Contract Closure
-deliver to customer to obtain scope completion
-all contract duties are meet & contract deliverables
Post Implementation Evaluation Report (PIER )
Figure 10.1: Project dual closure process
94
10.3
CLOSE DOWN PROCESS
During close down process, project manager and team need to make sure that all project goals and deliverables have been met. Before the project is handed over to customer, project manager has to ensure that the customer has needed knowledge and skills to control the project. It can be achieved through knowledge transfer and training session. After the customer ready to full control the project with the knowledge transfer that has been transferred, signature of completion must be documented to prove that project team has meet all deliverables. Next, the final of this process is to records or files all specified documents so that it can be examined and be as reference for the future projects.
95
CHAPTER 11
CONCLUSIONS & RECOMMENDATIONS
11.1
CONCLUSIONS & RECOMMENDATIONS
The planned design produces 5,116 MTPD of 99.85 wt% methanol. As designed, the total baremodule cost of the plant is $372 million. The series limit inside and outside costsare $349 million and $23 million respectively. Total capital investment includes the directpermanent investment of $512 million and $779 million. The calculated BTROI is 42% withannual net earnings of roughly $203 million per year. The NPV is $1.2 billion in the last year ofproduction and suggests a profitable venture.Methanol production is a high-risk venture and for such ventures the ROI should ideally be 20 – 40% in order to justify construction and operation of the plant. The calculated ROI of 26% withannual earnings of roughly $203 million per year suggest a worthwhile investment. The NPV of$1.2 billion in the last year of production also suggests a profitable venture.The removal of water in upstream processing proved highly beneficial in reducing the totalcapital and operating costs. The MSR (highly exothermic) isextremely sensitive to the inlet temperature. Any small disturbance to the inlet temperaturecould upset the process resulting in a runaway reaction. Therefore a large amount of theoperating cost is focused on cooling of the reactor and its inlet stream to prevent emergencyupsets. Last but not least, the removal of the distillation column willalso significantly reduce capital and operational costs.As designed it is advisable to pursue investment in this production plant.
96
