Published: December 1978
The present report is concerned with the relative costs of chemical plant construction worldwide. More specifically, it seeks to establish cost factors for Europe and Japan relative to the United States, and to generate comparable plant-cost escalation indices for the three areas. The cost indices and relative cost factors developed will be regularly updated and published in the Process Economics Program (PEP) Bulletin.
Indices for components representative of chemical plants were com- piled from regularly published statistical data. The relative costs of the components for mid-77 were developed in cooperation with plant contractors and equipment vendors in Japan, W. Germany, and the United States. These two independent sets of inputs were then combined with the PEP data base of investment estimates for well over 100 different chemical plants, to develop average index series representative of the local chemical industries. The purchasing-power-parity concept was a particularly useful tool for the comparative analyses, since it serves in large measure to eliminate the ambiguities associated with use of currency exchange rates and location factors and their fluctuations from day to day. (The purchasing-power-parity rate of exchange, despite its imposing name, is for a given item simply the ratio of prices in two different locations, the ratio being expressed in local currencies, e.g., yen/dollar. In this report we usually refer to it as the parity rate for short.)
The composite PEP Cost Indices developed in this study for Japan and W. Germany are analogous to the PEP Cost Index for the United States, which the Process Economics Program has been generating since 1975. A feature of these indices is that escalation in equipment costs is tracked with reference to the prices of finished equipment rather than the cost of materials and labor. The U.S. PEP Index, which previously lacked an explicit component for engineering and overhead, is itself modified as part of the study to include such a component.
The parts of the world chosen for the cost parameter comparisons are the Gulf Coast in the United States, W. Germany in Europe, and Japan. These locations were selected because of their importance in the chemical industry, and their frequent use as reference areas in the literature. Taken in toto, data for these three regions are considered to be a first approximation to trends in the developed areas of the world, and should provide a good starting point for estimating relative costs for other areas. It should be recognized that, even within a region such as the U.S. Gulf Coast, significant local variations exist at any given time. The scope of the present report, however, does not include more than an incidental examination of local variations or evaluation of data for other geographical areas. Similarly, another important aspect of construction cost projection, namely the effect of scale, is not examined in depth.
The format adopted for the present report is as follows. Following the summary, the bases and mechanics for generating cost indices, parity rates, and location factors, are first examined in general terms. The cost indices for the various locations are then presented and discussed in turn. The final sections of the report suggest some possible procedures for application of the data to regions other than the ones examined in detail, and also present some general guidelines on scaling.
A great deal of help has been received from both contracting and operating companies in the chemical industry. Without such cooperation this report would not have been possible. Contributions are gratefully acknowledged below.