Shall we build a plant or not? And what should we expect out of it?

An example of our work in Operations

Project evaluation (juan)

Shall we build a plant or not? And what should we expect out of it?

An example of our work in Operations

Building a new plant requires significant investments. Being able to take the correct decisions (in terms of technology to be adopted, operations and costs, revenues generated,…) makes the difference between success and failure. The following example – taken from our direct experience with a key client of ours, a global industrial player – proves very clearly the importance of making it right on such a crucial issue.

Our client was considering new investments in the production of base chemicals. There are different routes to produce base chemicals, as illustrated by the following graphs:

Emerging routes

In particular, our client wanted to understand the viability of building a new Propylene plant. To do this, they had to understand the best technology to adopt (considering the different possible routes), as well as the return to be expected on the capex invested.

The first thing we did was to analyze in details the Propylene cash cost of production, identifying in parallel the capacity trend to be projected in the coming decades:

Propylene cash cost  Propylene capacity trend

We then assessed the market potential, and in particular the demand curve to be expected for the future (in the same time horizon of the capacity trend):

One aspect that significantly affects the viability of a plant from an economic standpoint is the geographical balance (and unbalance) of supply/demand, which then determines the Net Trade across geographies. This is particularly important to understand the market potential of a plant in a specific region, and this is what we calculated for our client’s Propylene case.

Leveraging our competences and methodologies and combining together all the different analysis and business considerations that we performed, we were able to identify the best technical and financial solution for our client, which determined a return on capital in excess of 15%.


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