Friday, 29 November 2019

Polymerization Plants: How to Calculate Capital Expenses Using the “0.6 Rule”




In this blog post we discuss how to estimate the investment needed to expand an existing capacity of a polymerization plant.

Basic investment concept is the economy of scale which says that the relationship of scale to investment is not linear.

It behaves in an exponential way. This is shown by the mathematical relationship formula below:




The equation has an exponent which is called the “Lang Factor”. It varies depending on the plant size you would like to realize. For a full plant expansion, the Lang Factor varies typically between 0.6 and 0.7.

In chemical engineering this exponential relationship is called the “0.6 rule” or “six-tenths rule”. For better illustration of the equation the following example of a polyethylene (PE) plant expansion is considered.


The old plant has a capacity of 1 million metric tons PE and the new plant should have 2 million metric tons capacity. Original investment was 1 billion Euros.


How much capital investment is needed to double the production capacity?



1.57 billion Euros are needed.


This is an increase of 57% in capital needed to double the capacity. There are other factors such as inflation which needs to be considered too.


Altogether, it is a useful tool for a first estimation of capital costs.


Thanks for reading & till next time!


Greetings,
Herwig Juster



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Literature: [1] Nexant Training: https://training.nexant.com/

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