Detailed Operating Cost Estimation for Ammonia Plant in NSW, Australia

This report provides a detailed estimation of the operating costs for a proposed ammonia plant in New South Wales, Australia, considering two capacity utilization scenarios: 100% and 80%. The analysis includes calculations for raw material costs (RMC), utilities costs (UC), operating labor costs (OLC), and waste treatment costs (WTC), based on a fixed capital investment (FCI) of AU$117,261,571. At 100% capacity, the total annual operating cost is estimated at AU$162,862,786.70, with a cost per tonne of AU$1,229.20, while at 80% capacity, the total annual operating cost is AU$134,700,398.40, with a cost per tonne of AU$1,270.90. The report concludes that operating at 100% capacity is more profitable due to the lower production cost per tonne. The calculations and assumptions regarding raw material availability and utility costs are clearly outlined, providing a comprehensive overview of the plant's economic viability.

Estimation of Operating Costs 1
ESTIMATION OF OPERATING COSTS
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Estimation of Operating Costs 2
Estimation of Operating Costs
The operating cost (OC) is the sum of direct or variable costs (DVC), fixed costs (FC) and
general expenses (GE) of the ammonia production plant. DVC include the cost of raw materials,
utilities, labour and maintenance/repairs. FC include depreciation, taxes and insurance (but
depreciation is not considered in this case). GE include administrative costs, overhead and
research & development costs. Therefore OC = DVC + FC + GE
In this regard, the OP can be estimated using the following parameters: fixed capital investment
(FCI), raw materials cost (RMC), utilities cost (UC), operating labour cost (OLC) and waste
treatment cost (WTC). The elements of DVC, FC and GE can then be determined by using each
of the above parameters with a multiplier or multiplication factor (Morgan, 2013). For instance,
the depreciation, insurance and taxes of a chemical plant are related directly to the plant’s FCI;
and the overhead costs of the plant are directly related to the FCI and labour.
OC = 0.18FCI + 2.73OLC + 1.23(RMC + UC + WTC)
The multipliers used in this case are as provided in Table 1 below
Parameter of OC Multiplier
DVC
RMC RMC
UC UC
WTC WTC
OLC OLC
Clerical and direct supervisory labour 0.18OLC
Laboratory charges 0.15OLC
Operating supplies 0.009FCI
Maintenance and repairs 0.06FCI
Patents & royalties 0.03OC
Total DVC RMC+UC+WTC+1.33OLC+0.069FCI+0.03OC
FC
Depreciation cost NA
Overhead costs 0.036FCI + 0.78OLC
Insurance and taxes 0.032FCI

Estimation of Operating Costs 3
Total FC 0.068FCI + 0.78OLC
GE
Administration costs 0.009FCI + 0.177OLC
Research & development costs 0.05OC
Distribution & selling costs 0.11OC
Total GE 0.009FCI+0.177OLC+0.16OC
TOTAL Costs RMC+UC+2.287OLC+WTC+0.146FCI+0.19OC
i) At 100% capacity utilization
Annual ammonia production capacity of the proposed plant at 100% utilization is 132,490 tonnes
The total operating cost = RMC+UC+2.287OLC+WTC+0.146FCI+0.19OC
FCI = AU$117,261,571
RMC
The main raw material for the plant is natural gas. About 15x106 Btu of natural gas is needed to
produce 1 tonne of ammonia. This means that the amount of ammonia needed to produce
132,490 tonnes of ammonia per year is: 132,490 tonnes x (15x 106 Btu/tonne) = 1.98735 x 1012
Btu = 2,096,846.8 gigajoule
The cost of natural gas is $64 per gigajoule. Hence the cost of natural gas needed is 2,096,846.8
x 64 = AU$134,198,195.20. But it is assumed that the plant is located in area with an abundant
supply of natural gas and the field has already been bought. Thus the total annual RMC,
including the cost of natural gas, iron catalyst, and others, needed for the plant is 10% of
AU$134,198,195.20 = AU$ 13,419,819.50
UC
Electricity cost
The estimated annual electricity consumption of the plant when at 100% utilization is 300 x 106
kWh
The price of 1 kWh = AU$0.333
Total cost of electricity = 300 x 106 kWh x AU$0.333/kWh = AU$99,900,000 = AU$99.9
million
Water cost
It is also assumed that the plant is located along the coastline hence water is available for free.
Therefore the estimated annual cost of water (for pumping) for the plant is AU$100,000
Other utilities

Estimation of Operating Costs 4
The cost of other utilities is estimated to be AU$0.10 per tonne. Thus the total cost for 132,490
tonnes per year = 132,490 tonnes x AU$0.10/tonne = AU$13,249
Total UC = AU$99.9 million + AU$100,000 + AU$13,249 = AU$100,013,249
OLC
Full time engineers = 2, annual labour rates = AU$100,000
Full time technicians = 3, annual labour rate = AU$50,000
Other staffs = 10, annual labour rate = AU$20,000
Total OLC = (2xAU$100,000) + (3xAU$50,000) + (10xAU$20,000)
= AU$200,000 + AU$150,000 + AU$200,000 = AU$550,000
WTC
The estimated annual WTC for the plant is AU$200,000
Therefore
RMC = AU$13,419,819.50
UC = AU$100,013,249
OLC = AU$550,000
WTC = AU$200,000
But OC = 0.18FCI + 2.73OLC + 1.23(RMC + UC + WTC)
= 0.18(117,261,571) + 2.73(550,000) + 1.23(13,419,819.50 + 100,013,249 + 200,000)
= 21,107,082.78 + 1,501,500 + 16,506,378 + 123,016,296.30 + 246,000
= AU$162,377,257.00
Therefore total operating cost per year at 100% utilization =
RMC+UC+2.287OLC+WTC+0.146FCI+0.19OC
13,419,819.50 + 100,013,249 + 2.287(550,000) + 200,000 + 0.146(117,261,571) +
0.19(162,377,257)
= 13,419,819.50 + 100,013,249 + 1,257,850 + 200,000 + 17,120,189.40 + 30,851678.80
= AU$162,862,786.70
Since the full capacity of the plant is 132,490 tonnes per year, it means that the operating cost per
tonne is:

Estimation of Operating Costs 5
OC per tonne= AU $ 162,862,786.70
132,490 = AU $ 1,229.20
Therefore the operating cost at 100% capacity utilization of the plant is AU$162,862,786.70
while the operating cost per tonne is AU$1,229.20
The summary of these costs is provided in Table 2 below
Table 2: Summary of operating costs at 100% capacity utilization
Operating costs at 100% capacity utilization
Annual operating cost AU$162,862,786.70
Operating cost per tonne AU$1,229.20
ii) At 80% capacity utilization
When the plant is at 80% capacity utilization, annual ammonia production is 80% of 132,490
tonnes = 105,992 tonnes
The total operating cost = RMC+UC+2.287OLC+WTC+0.146FCI+0.19OC
FCI remains AU$117,261,571 regardless of the capacity utilization
RMC
The amount of ammonia natural gas needed to produce 1 tonne of ammonia is 15x106 Btu.
Hence the amount of natural gas needed to produce 105,992 tonnes of ammonia per year is:
105,992 tonnes x (15x 106 Btu/tonne) = 1.58988 x 1012 Btu = 1,677,477.44 gigajoule
The cost of natural gas is $64 per gigajoule. Hence the cost of natural gas needed is 1,677,477.44
x 64 = AU$107,358,556.16. But since the plant is assumed to be located in a natural gas field,
the cost of natural gas is very low. It is generally assumed that the total annual RMC including
the cost of natural gas and other needed materials is 10% of AU$107,358,556.16 =
AU$10,735,855.60
UC
Electricity cost
The estimated annual electricity consumption of the plant when at 80% utilization is 240 x 106
kWh
The price of 1 kWh = AU$0.333
Total cost of electricity = 240 x 106 kWh x AU$0.333/kWh = AU$79,920,000
Water cost

Estimation of Operating Costs 6
It is also assumed that the plant is located along the coastline hence water is available for free.
Therefore the estimated annual cost of water (for pumping) for the plant is AU$80,000
Other utilities
The cost of other utilities is estimated to be AU$0.10 per tonne. Thus the total cost for 105,992
tonnes per year = 105,992 tonnes x AU$0.10/tonne = AU$10,599.20
Total UC = AU$79,920,000 + AU$80,000 + AU$10,599.20 = AU$80,010,599.20
OLC
Full time engineers = 2, annual labour rates = AU$100,000
Full time technicians = 3, annual labour rate = AU$50,000
Other staffs = 8, annual labour rate = AU$20,000
Total OLC = (2xAU$100,000) + (3xAU$50,000) + (8xAU$20,000)
= AU$200,000 + AU$150,000 + AU$160,000 = AU$510,000
WTC
The estimated annual WTC for the plant is AU$150,000
Therefore
RMC = AU$10,735,855.60
UC = AU$80,010,599.20
OLC = AU$510,000
WTC = AU$150,000
But OC = 0.18FCI + 2.73OLC + 1.23(RMC + UC + WTC)
= 0.18(117,261,571) + 2.73(510,000) + 1.23(10,735,855.60 + 80,010,599.20 + 150,000)
= 21,107,082.78 + 1,392,300 + 13,205,102.40 + 98,413,037 + 184,500
= AU$134,302,022.18
Therefore total operating cost per year at 80% utilization =
RMC+UC+2.287OLC+WTC+0.146FCI+0.19OC
10,735,855.60 + 80,010,599.20 + 2.287(510,000) + 150,000 + 0.146(117,261,571) +
0.19(134,302,022.18)
= 10,735,855.60 + 80,010,599.20 + 1,166,370 + 150,000 + 17,120,189.40 + 25,517,384.20

Estimation of Operating Costs 7
= AU$134,700,398.40
Since the full capacity of the plant is 105,992 tonnes per year, it means that the operating cost per
tonne is:
OC per tonne= AU $ 134 , 700 , 398.40
105 ,9 92 =AU $ 1,270.90
Therefore the operating cost at 80% capacity utilization of the plant is AU$134,700,398.40 while
the operating cost per tonne is AU$1,270.90
The summary of these costs is provided in Table 3 below
Table 3: Summary of operating costs at 80% capacity utilization
Operating costs at 80% capacity utilization
Annual operating cost AU$134,700,398.40
Operating cost per tonne AU$1,270.90
The overall summary of annual operating cost and cost per tonne at 100% and 80% capacity
utilization is provided in Table 4 below
Table 4: Summary of operating costs
Annual production At 100% capacity
utilization
At 80% capacity utilization
Annual operating cost 132,490 AU$162,862,786.70 AU$134,700,398.40
Operating cost per tonne 105,992 AU$1,229.20 AU$1,270.90
From the summary in Table 4 above, the annual production cost at 100% capacity utilization is
lower than that at 80% capacity utilization by AU$28,162,388.30. Additionally, the cost of
production per tonne at 100% capacity utilization is slightly lower than that at 80% capacity
utilization by AU$41.70. Therefore the company should operate at 100% capacity utilization to
realize more profit. It is also important to note that the operating cost per tonne for both
utilization rates is almost the same, which shows that the calculations are accurate.

Estimation of Operating Costs 8
References
Morgan, E., 2013. Techno-Economic Feability Study of Ammonia Plants Powered by Offshore WInds.
Massachusetts: University of Massachusetts Amherst.