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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
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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/).
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
Source: Steve, 2006
3
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
pressure)
64.6 °C
Elemental composition by
weight
% Oxygen
% Carbon
% Hydrogen
50%
37.5%
12.5%
1.2.2 CHEMICAL PROPERTIES OF METHANOL
1.2.2.1 COMBUSTION OF METHANOL:
Methanol burns with a light-blue, non-luminous flame to form carbon dioxide and steam.
2CH3OH + 3O2 ===> 2CO2 + 4H2O
1.2.2.2 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 ===> HCHO + H2
(Methanol) (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 ===> HCOOH ===> CO2 + H2O
(Formaldehyde) (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 ===> HCHO + H2
(Methanol) (Formaldehyde)
1.2.2.5 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 ===> (CH3)2SO4 + H2O
(Methanol) (Dimethyl Sulphate) (Water)
1.2.2.6 ESTERIFICATION OF METHANOL:
Methanol reacts with organic acids to form esters.
H (+)
CH3OH + HCOOH ===> HCOOCH3 + H2O
(Methanol) (Formic Acid) (Methyl Formate) (Water)
1.3 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
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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
12
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
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).
13
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.
Figure 2.2: Market Status of World Proved Gas Reserves
14
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).
15
Table 2.2: World Proved Reserves (1988)
Region Proved Reserves Committed Delayed Surplus
Domestic Export Deferred Frontier Exportable Marginal
NORTH AMERICA
OECD 286.9 182.6 16.8 30.1 14.4 39.7 3.3
EUROPE
OECDU.S.S.R
Other east
200.01500.029.0
78.8481.828.6
45.262.00.0
6.80.00.0
0.00.00.0
66.5836.20.0
2.7120.00.4
ASIA PASIFIC
OECDIndonesia
Non- Opec DevelopingChina
78.083.6134.431.7
22.69.546.99.7
5.729.86.50.0
0.23.10.00.0
0.00.00.00.0
45.839.550.30.0
3.71.730.722.0
LATIN AMERICA
OPECNon_OPEC Developing
106.2134.5
14.044.1
0.00.3
73.050.1
0.00.0
16.834.1
2.45.9
AFRICA
OPECNon_OPEC Developing
215.532.2
40.810.7
28.30.0
25.00.8
0.00.0
104.16.7
17.314.0
MIDDLE EAST
OPECNon_OPEC Developing
1146.221.0
85.17.6
2.90.0
461.82.3
0.00.0
482.90.0
113.511.1
TOTAL WORLD 3999.2 1062.8 197.5 653.2 14.4 1722.6 348.7
16
FIGURE 2.3: PROVED RESERVES AND EXPORTABLE SURPLUS
Source: William, 2003
17
FIGURE 2.4: PROVED RESERVES AND EXPORTABLE SURPLUSES
Source: William, 2003
18
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.
19
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).
20
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
21
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
22
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.
23
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.
24
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
25
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.
26
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
close to these if they are heavy and bulky
to transport
Labor: A large cheap labor force is required
for laborintensive manufacturing industries.
High-tech industries have to locate where
suitable skilled workers are available
Energy supply: This is needed to operate
the machines in a factory. Early industries
were near to coalfields. Today, electricity
was used widely for supply energy.
Market: An accessible place to sell the
products is essential for many industries:
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'.
27
Physical Human and Economic
Natural routes: River valleys and flat
areas were essential in the days before
railways and motorways made the
movement of materials easier.
Transport: A good transport network
helps reduce costs and make the movement
of materials easier.
Site and land: Most industries require
large accessible areas of cheap, flat land
on which to build their factories.
Cost of land: Greenfield sites in rural
areas are usually cheaper than brown field
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/
28
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 complete all registration procedures
(http://www.doing business.org/).
29
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).
30
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).
31
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
Project application report
Other documents circulated by laws and regulations.
3.4 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 country-
specific information on business registration requirements.
3.4.1 How to Register a Business in China
32
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.
3.4.1.1 Business Plan
33
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.
3.4.1.4 Business License
34
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
Source:http://www.doing business.org/
3.4.1.6 Statistics or Tax Rate Regulation
35
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%
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).
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
36
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
projects are usually very small. If a company consists of more than one
department, it is usually structured as a functional organization.
37
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.
Production of Methanol
38
Using Natural Gas
Project Manager
MohamadTarmizi
Finance
Norakasmaliza
Manufacturing
Noor Azira
R&DFauziana
o Market
o overview,
survey and site
location
proposal
o Company set-
up and
organizational
structure
o Approval
agencies and
forms for
various
approval
o Costing
estimations
(initial
approval)
o Main
equipment
design and
specifications
o Detailed
costing
o Description of
product and use
o Conceptual
design
o Process design
o Project
planning
and
scheduling
o Economic
analysis
Figure 3.3: The Organization Structure for the Methanol Production in China.
3.5.1 DESCRIPTION THE TASK
39
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).
3.5.1.3 MANUFACTURING DEPARTMENT
40
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).
41
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.
42
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
43
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
44
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.
45
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.
46
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.
47
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.
48
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):
49
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.
50
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.
51
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.
52
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 250-
260oC. 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).
53
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.
54
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).
55
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).
56
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
57
Figure 5.3: Simplified Natural Gas to Methanol Flow sheet
58
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 two-
stage 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.
59
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.
60
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.
61
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.
62
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.
63
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.
CH4+ H20===>C0 +3H2∆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-to-
methane ratio.
64
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
CH4+ 0.5O2===>CO+ 2H2 ∆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 R-
100 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.
6.1.3 METHANOL SYNTHESIS REACTOR (R-300)
65
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.
Table 6.1 : Maximum conversion as a function of H2-to-CO ratio and temperature.
66
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.
67
Temperature
(K)
Pressure (MPa) H2:CO ratio 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
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 1.939-in I.D.
68
6.2 UPSTREAM PROCESSING
Figure 6.1: STAGE 2 - Upstream processing.
69
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:
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 R-
100section), an inter-stage compressor (CMP-200) is used. The inter-stage
compressor has theadvantage of better temperature control, and it will also decrease
70
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.
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
71
Figure 6.2 STAGE 4 - downstream processing.
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
72
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.
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.
73
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.
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) = πr2h
h/D = 3
74
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
CHAPTER 7
PROJECT COSTING
7.1 EQUIPMENT COST SUMMARY
7.1.1 Pump Costs
75
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.
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
76
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.
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.
77
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.
Table 7.1: Descriptions & estimated costs of specific units in the process flow diagram.
UNIT TYPE DESCRIPTION BASE COST/UNIT ($)
NO. OF UNITS
TOTAL COST ($)
1. Furnaces $ $F-100 Furnace 4,635,643 1 4.635,643
2. Reactors $ $R-100 SMR-Furnace 17,237,109 1 17,237,109R-100 SMR-Vessel 57,592,250 1 57,592,250R-200 OBR 40,389,195 1 40,389,195R-300 MSR 16,392,569 10 163,925,690
3. HEX $ $E-100 Heat Exchanger 344,960 1 344,960C-100 Cooler 7,243,525 1 7,243,525
78
C-200 Cooler 8,948,014 1 8,948,014C-300 Cooler 182,177 1 182,177
4. Pumps $ $P-100 Pump 17,237,109 1 17,237,109
P-spare Spare Pump 17,237,109 1 17,237,1095. Separators $ $
U-200 Flash Unit 698,198 1 698,198U-300 Flash Unit 276,663 1 276,663D-100 Distillation 581,086 1 581,086
6. Compressors $ $ CMP-200 Compressor 46,311,255 1 46,311,2557. Storage Tanks $ $ Floating Roof Storage Tanks 430,588 17 7,319,479
TOTAL $355,978,579
7.2.2 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.
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.
79
Table 7.2: Summary plant costs and operations.
Cost Factor Annual CostFeedstocks (raw materials) Natural gas $2,802,866 Boiler feed water make-up $364,001 Oxygen $42,395,868 Total $45,562,735
Utilities Electricity $7,634,955 Cooling water, 90F, 65 psig (CW) $7,769,894 Chilled cooling water, 60F $90,009,785 Natural gas (fuel), 90F, 75 psig 1050 BTU/SCF
$19,211,641
Total $124,626,275
Operations (Labor-related) (O) Direct wages and benefits (DW&B) $524,160 Direct salaries and benefits $104,832 Operating supplies and services $4,504,177 Control laboratory $78,624 Total $5,211,793Maintenance (M) Wages and benefits (MW&B) $11,260,443 Materials and services $18,767,405 Total $30,027,488
Operating Overhead $11,968,059
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
80
CHAPTER 8
PROJECT PLANNING AND SCHEDULING
8.1 PROJECT PLANNING
81
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.
82
W02 W03 W04 W05 W06 W07 W08 W09 W010 W011 W12 W13 W14 W15
ACTIVITIES
12 JU
L –
16JU
L
19 JU
L –
23 JU
L
26 JU
L –
30 JU
L
02 A
UG
– 0
6 AU
G
09AU
G–
13 A
UG
16 A
UG
– 20
AU
G
23 A
UG
– 27
AU
G
30 A
UG
– 0
3 SE
P
06 S
EP –
09
SEP
10 S
EP–
19 S
EP
20 S
EP –
24
SEP
27 S
EP –
1O
CT
04 O
CT –
08O
CT
11 O
CT –
15O
CT
1 Project Title
MID
SEM
ESTE
R BR
EAK
2 Description of product and use
3Market overview, survey and site location proposal
4Company set-up and organizational structure
5Approval agencies and form for various approval
6Conceptual design such as block diagram, equipment and other
7 Process design
8Cost estimations (initial approval)
9Main equipments design and specifications
10 Detailed costing 11 Project planning and scheduling 12 Economic analysis
13Project completion and handover
DESIGN PROJECT PLANNING GANTT CHART FOR PROJECT PRODUCTION OF METHANOL
Figure 8.1: Design project planning gantt chart for project production of methanol
83
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.
84
8.2.1 GENERAL SCHEDULING OF THE PROJECT
Table 8.2: A Set of Project and Precedence’s
Activity Description Predecessors
11
1
2
3
4
5
6
7
8
9
10
12
13
Project planning
Project title
Description of product
Market overview, survey and site location
Company set-up
Approval agencies
Conceptual design
Process design
Cost estimations
Main equipments design
Detailed costing
Economic analysis
Project completion
………..
11
1
2
11
4
3
6
5,7
8
9
10
Project Finish
85
Figure 8.2: A Complete AON (activity-on-arrow) network from Table 8.1
86
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 set-
up) 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.
87
supplier
WORK BREAKDOWN STRUCTURE
Objective: Production of Methanol from Nature Gas
Chemical Production
Project
project manager
financeManufacturing
R & D
project budget company set-up project planning
contractor (input)
(process)
(output)
product research process research
plant hire material
labour
Figure 8.3: Work breakdown structure
88
CHAPTER 9
ECONOMIC ANALYSIS
9.1 PROFITABILITY MEASURES
9.1.1 Return on Investment (ROI)
The return on investment calculation is as follows:
ROI=(1−t)(S−C)
CTCI
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,
ROI=(1−t)(S−C)
CTCI
=(1−0.38)($538,236,002−$194,528,724 )
$777,623,059
and so the final ROI is roughly 27.4 %.
89
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.
90
Table 9.1: Calculation of Cash Flows and NPV
Year MACRS fCTDC 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 life of 15 years.
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9.1.3 Cash Flows (CF)
During the years of plant construction, the CF for a particular year is as
follows:
CF=−fC TDC−CWC−C land(ref .)
For the after-tax earnings plus depreciation CF for a particular year the
following equation was used:
CF=(1−t ) (S−C )+D (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.
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Table 9.2: Annual Cash Flow
9.1.4 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.
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Year Year of operation Cash flow2009 1 ($421,630,980)2010 2 $300,638,8422011 3 $268,292,3612012 4 $248,884,4722013 5 $248,884,4722014 6 $234,328,5552015 7 $219,772,6392016 8 $219,772,6392017 9 $219,772,6392018 10 $219,772,6392019 11 $219,772,6392020 12 $219,772,6392021 13 $219,772,6392022 14 $219,772,6392023 15 $219,772,639
Table 9.3: Depreciation Schedule
Year Year of Operation MACRS D($/yr) Taxes Saved ($/yr)2009 1 20.00% $133,003,624 $50,541,3772010 2 32.00% $212,805,798 $80,866,2032011 3 19.20% $127,683,479 $48,519,7222012 4 11.52% $76,610,087 $29,111,8332013 5 11.52% $76,610,087 $29,111,8332014 6 5.76% $38,305,044 $14,555,9172015 7 - - -2016 8 - - -2017 9 - - -2018 10 - - -2019 11 - - -2020 12 - - -2021 13 - - -2022 14 - - -2023 15 - - -
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.
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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.
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10.2 PROJECT DUAL CLOSURE PROCESS
Figure 10.1: Project dual closure process
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PROJECT CLOSURE PHASE
Administrative Closure
-deliver to customer to obtain scope completion
Contract Closure
-all contract duties are meet & contract deliverables
Post Implementation Evaluation Report (PIER)
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.
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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.
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