Project Proposal should consist of the feasibility studies which include technical concepts, budgetary and the most important thing is the economic calculation. One of my job functions is to evaluate the options and come up with recommendation by considering sensitivity analysis
This Compressor station will be developed due to gas sales opportunity to public electrical company for their Gas Turbine Generators. This analysis will give us the idea of economic limit of the project.
- The uncertainty of gas price against the capital investment, operating expense as well as proven certification reserve.
- The Compressor Package shall fulfill the technical requirements as Basis of Design and economically feasible based on the capital investment, operating expense and revenue generated.
Table below is showing Production Profile for 5 years service life, forecast of investment, opex and method of depreciation.
How do we know the sensitivity against gas price (from US$4.5 – 6 /MBTU), NPV@10%, IRR, capex and opex ? The table below is showing calculation of those parameters.
Development of the outcomes
The graph below is indication of sensitivity analysis:
Minimum Acceptable requirements
The criteria of economic selection are:
- The Highest Net Income for Government.
- Life Time for 5 years.
- NPV calculated at 10% Discount.
- Cost Depreciation is applied for Double Declining Balance which is 5 years for production facility.
Analyze and compare the alternatives
Based on the alternatives as given, we come up with the preliminary economic calculation based on the sensitivity analysis US$4.5 /MBTU gas price for the given surface facility investment:
The projected cost for compressor station for US$3.1 million is still acceptable for the worst case gas price US$4.5 /MBTU.
Develop preferred alternative
Gas Compressor Station for US$3.1 million , is this worth Doing?
Estimated revenue generated at NPV10% for Government Take is US$3.247 million for 5 years operation. The Pay Out Time is 2.83 years with IRR17.62%.
The following summaries the information considered before it made as Go or No Go Decision:
Monitor and Evaluation (Post Mortem)
After the Authorization for Expenditure (AFE) is approved, the following Success Planning is monitored and shall be achieved.
- Spills – zero.
- Industrial Accident / LTI – zero.
- Cost performance – +/- 10% of budget.
- Schedule performance – +/- 10% of milestone dates.
The following action items are a must for achieving the Success Metrics above:
- Good team work & coordination – meet on regular basis, good cross functional participation and good team commitment.
- Follow the project management practices.
- Follow HES procedures and approved standards & codes.
- Utilize VIP’s & Best Practices.
- Involve the right resources (e.g., contract development).
- Peters, Max S & Timmerhaus, Klaus D. (1991), Plant Design and Economics for Chemical Engineers 4th Edition, Singapore: McGraw-Hill, Inc.
- Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick (1942), Engineering Economy 15th Edition, Singapore: Prentice Hall, Inc.