LECTURE 2
REFINING COSTS ESTIMATION
the capital Estimating cost of a refinery depends on several factors, including capacity,
location, complexity, technology, and regulatory requirements. Below is a general guide on
capital cost estimation for an oil refinery.
1. Capital Cost Components
Capital cost is divided into fixed capital investment (FCI) and working capital investment
(WCI).
A. Fixed Capital Investment (FCI)
This includes:
1. Process Equipment Cost – Reactors, heat exchangers, distillation columns, pumps,
compressors, etc.
2. Utilities & Infrastructure – Power supply, steam generation, water treatment,
effluent treatment.
3. Storage Facilities – Crude oil tanks, product storage, pipelines.
4. Buildings & Civil Work – Administration buildings, control rooms, roads.
5. Installation & Commissioning – Equipment erection, piping, wiring, testing.
6. Engineering & Project Management – Engineering studies, procurement, legal fees.
B. Working Capital Investment (WCI)
This includes:
Raw material inventory (crude oil storage for at least 30–60 days)
Operational cost buffer (staff salaries, maintenance)
Product inventory (storage of refined products)
Accounts receivable/payable management
2. Refinery Cost Estimation Approaches
There are multiple methods to estimate refinery capital cost:
A. Capacity-based Cost Estimation
A rough estimate of capital cost is based on refinery capacity:
Small Refineries (10,000–50,000 barrels per day) → $500 million – $2 billion
Medium Refineries (50,000–200,000 barrels per day) → $2 billion – $10 billion
Large Refineries (200,000+ barrels per day) → $10 billion – $20+ billion
A rule of thumb suggests:
Capital Cost ≈ 10,000−50,000 × Capacity in bpd
(E.g., a 100,000 bpd refinery might cost around $5 billion)
B. Lang Factor Method
A quick estimation approach using Lang Factor:
Total Cost = Purchased Equipment Cost × Lang Factor
Typical Lang Factors:
Simple plants: 3.1 – 3.3
Medium complexity: 4.0 – 4.5
High complexity refineries: 5.0 – 6.0
Example:
If process equipment costs $1 billion, total project cost (for a high complex refinery)
would be: 1×5.5 = 5.5 billion USD
C. Cost Scaling Equation
If cost is known for a reference refinery, scaling can be done using:
C2 = C1 × (S2 / S1) n
where:
C2 = Estimated cost
C1 = Known cost of reference refinery
S2 = New capacity
S1 = Reference capacity
n = Scaling factor (~0.6 to 0.7 for refineries)
Example:
A 100,000 bpd refinery costs $5 billion
Estimate for a 150,000 bpd refinery: C2 = 5× (150,000/100,000)0.65
C2 ≈ 6.5 billion USD
3. Cost Breakdown (Typical Distribution)
Process Units → 30–40%
Utilities & Offsites → 25–35%
Storage & Logistics → 10–15%
Installation & Commissioning → 10–15%
Engineering & Miscellaneous → 5–10%
4.Example Capital Cost Estimates
Refinery Capacity Estimated Capital Cost
10,000 bpd $500 million – $1 billion
50,000 bpd $2 billion – $3 billion
100,000 bpd $4 billion – $6 billion
200,000 bpd $10 billion – $15 billion
400,000 bpd $15 billion – $25 billion
5. Factors Affecting Capital Cost
1. Refinery Complexity – Higher complexity e.g., hydrocracking, F(CC units) increases
cost.
2. Location & Infrastructure – Remote locations require additional investment.
3. Regulations & Compliance – Environmental controls add costs.
4. Technology Selection – Advanced processes cost more.
5. Material & Labor Costs – Varies by region.
6. Cost Optimization Strategies
Modular Construction – Reduces field labor costs.
Brownfield vs. Greenfield – Expanding existing sites is cheaper than new ones.
Technology Licensing – Licensed processes may reduce R&D costs.
Conclusion
Refinery capital cost varies significantly based on size, complexity, and location.
A 100,000 bpd refinery typically costs $5 billion – $6 billion.
Estimation methods include capacity-based scaling, Lang factor, and cost scaling
models.
Detailed feasibility studies are needed for accurate cost assessment.
Here are some multiple-choice questions (MCQs) based on the provided content on refinery
cost estimation:
1. What is the primary distinction between Fixed Capital Investment (FCI)
and Working Capital Investment (WCI) in refinery cost estimation?
a) FCI includes operational costs, while WCI covers construction costs.
b) FCI includes equipment, utilities, and storage, while WCI includes raw material inventory
and operational costs.
c) FCI is unrelated to infrastructure, while WCI includes machinery costs.
d) FCI refers only to equipment costs, while WCI includes everything else.
2. Which of the following is NOT included in Fixed Capital Investment (FCI)?
a) Process Equipment Cost
b) Raw material inventory
c) Storage Facilities
d) Installation & Commissioning
3. What is an example of an item included in Working Capital Investment
(WCI)?
a) Crude oil tanks
b) Engineering studies
c) Raw material inventory
d) Control rooms
4. For a small refinery with a capacity of 30,000 barrels per day, what is the
estimated capital cost range?
a) $500 million – $2 billion
b) $2 billion – $10 billion
c) $10 billion – $20 billion
d) $500 million – $1 billion
5. What does the Lang Factor Method estimate?
a) The total cost based on refinery capacity.
b) The cost for a specific refinery unit, such as a distillation column.
c) The total project cost based on equipment cost and complexity.
d) The working capital required for daily operations.
6. If process equipment costs $1 billion and the Lang Factor for a high-
complexity refinery is 5.5, what is the total estimated project cost?
a) $5.5 billion
b) $3.5 billion
c) $6.5 billion
d) $10.5 billion
7. According to the cost scaling equation, what is the formula to estimate the
cost for a refinery of a new capacity?
a) C2 = C1 × (S1 / S2) n
b) C2 = C1 × (S2 / S1) n
c) C2 = C1 × (S2 - S1) n
d) C2 = C1 + (S2 / S1) n
8. For a refinery with a reference capacity of 100,000 bpd and a known cost of
$5 billion, what is the estimated cost for a refinery with a capacity of 150,000
bpd using a scaling factor of 0.65?
a) $6 billion
b) $5.5 billion
c) $6.5 billion
d) $7 billion
9. Which of the following is the typical range for process units' cost
distribution in a refinery project?
a) 10–20%
b) 30–40%
c) 50–60%
d) 70–80%
10. The Lang Factor for high-complexity refineries typically ranges from:
a) 1.0 – 1.5
b) 2.0 – 2.5
c) 4.0 – 4.5
d) 5.0 – 6.0
Here are multiple-choice questions (MCQs) based on the provided content on capital cost
estimates, factors affecting capital cost, and cost optimization strategies for refineries:
1. What is the estimated capital cost range for a refinery with a capacity of
10,000 barrels per day (bpd)?
a) $500 million – $1 billion
b) $2 billion – $3 billion
c) $4 billion – $6 billion
d) $10 billion – $15 billion
2. For a refinery with a capacity of 200,000 bpd, what is the estimated capital
cost range?
a) $4 billion – $6 billion
b) $2 billion – $3 billion
c) $10 billion – $15 billion
d) $15 billion – $25 billion
3. Which of the following factors increases the capital cost of a refinery?
a) Lower refinery complexity
b) Proximity to existing infrastructure
c) Use of advanced technology
d) Reducing material costs
4. What is the capital cost range for a refinery with a capacity of 400,000 bpd?
a) $4 billion – $6 billion
b) $15 billion – $25 billion
c) $10 billion – $15 billion
d) $2 billion – $3 billion
5. Which of the following is a factor that does NOT affect refinery capital
cost?
a) Refinery complexity
b) Location and infrastructure
c) Technology selection
d) Marketing strategy
6. Modular construction in refineries primarily helps to:
a) Reduce operational costs
b) Increase the complexity of the refinery
c) Reduce field labor costs
d) Improve technology selection
7. Brownfield projects, in comparison to Greenfield projects, are generally:
a) More expensive due to new infrastructure requirements
b) Cheaper due to expansion on existing sites
c) Less environmentally regulated
d) More complex in terms of construction
8. Which factor typically increases the capital cost for refineries located in
remote areas?
a) Lower material costs
b) Increased need for infrastructure investment
c) Reduced labor costs
d) Less need for environmental compliance
9. Technology licensing can help refineries reduce costs primarily by:
a) Lowering labor costs
b) Reducing research and development expenses
c) Minimizing the need for raw material
d) Improving efficiency in process equipment
10. What is the capital cost estimate for a refinery with a capacity of 100,000
bpd?
a) $2 billion – $3 billion
b) $4 billion – $6 billion
c) $10 billion – $15 billion
d) $15 billion – $25 billion
