Atmospheric and vacuum expansion

Is your device new? Why expand right after starting to drive? Generally, new installations undergo a cycle of operation before any issues are addressed, with improvements made to the bottlenecks

The oil industry is facing declining production due to factors such as the deterioration of resources and an increase in the water content of crude oil; as a result, more and more adjustment and renovation projects are carried out to increase production, and economic evaluations are generally required for these projects. Its task is to evaluate the objectivity, authenticity, and feasibility of the project in terms of the necessity for corporate renovation and expansion, market demand forecasts, construction scale, product design, site selection, production processes, selection of major equipment, raw material supply, engineering solutions, project implementation timeline, and corporate organizational structure. It also aims to provide reasoned conclusions based on assessments of the project’s investment estimates, funding sources, financial benefits, and investment risks, thereby offering a scientific basis for higher-level authorities to make decisions regarding the project. Therefore, conducting a proper evaluation of renovation and expansion projects not only holds great practical significance but is also a key focus for work in the coming period. I. Evaluation of total volume and increments as well as definition of project scope 1. Issues related to the evaluation of total volume and increments: On a macro level, there are two purposes to analyzing the profitability of renovation and expansion projects. The first is to assess the economic benefits of the additional investments required for such renovations and expansions – to determine whether it is better for a company to carry out these renovations and expansions or not ； The second is to evaluate the overall efficiency of the enterprise after the renovation and expansion, so as to assess the potential impact of such projects on the enterprise and decide whether to proceed with the renovation and expansion. At present, **given the shortage of construction funds, it is necessary to optimize and compare various ways of using these funds in order to improve their efficiency. In such situations, it is essential to consider not only the economic benefits of incremental investments but also the extent to which such investments can generate economic benefits. Under normal circumstances, the investment decision for a renovation and expansion project can be made based on the results of the incremental evaluation. 2. Definition of the project scope: When an economic evaluation specialist is assigned a evaluation task, they should first determine what the scope of the economic evaluation entails. Only by accurately defining this scope can it be ensured that the results of the economic evaluation are reasonable and reliable. Compared to new projects, a notable feature of renovation and expansion projects is the project scope, which serves as the basis for defining the project clearly and is essential and a prerequisite for the successful completion of such projects. It is easy to see from the methods used to analyze the profitability of renovation and expansion projects that defining different project scopes does not affect the various economic indicators of such projects; since the defined project scopes may vary, the calculated incremental or additional data remains exactly the same. Therefore, project scope definition requires economic evaluators to handle it based on the specific circumstances of the project. Generally speaking, the larger the project scope, the more data needs to be collected, which in turn means more calculations are required; yet many of these data points are not actually useful for calculating indicators. Therefore, the definition of the project scope should adhere to the following principle: in terms of profitability analysis, the smaller the project scope, the better, provided that it is possible to clarify the benefits and costs that the project brings to the enterprise. II. Definition of Projected and Unprojected States and Data Selection In practical work, since engineering and technical personnel determine the scope of the renovation or expansion project, as well as the process flow, material balance, utility consumption, and staffing requirements after the renovation or expansion, economic evaluators do not face too many difficulties in determining the projected state. However, given that most engineering and technical personnel do not have a deep enough understanding of the economic evaluation methods for comparing projected and unprojected states, it is often up to the economic evaluators to ensure that the unprojected state is defined correctly. The key points and difficulties in defining a state without specific projects lie in a business threshold under current conditions, which changes over time as well as due to variations in the company’s internal and external factors ； The project-free state represents a time series of the company’s production when no renovations or expansions are carried out. The main differences between the data from the project-free state and the current status data are as follows: 1. The amount of raw materials processed, the amount of utilities consumed, and the material balance may vary. For example, a gas treatment plant belonging to an oil company currently has a gas treatment capacity of 1.83*108 Nm3 per year; however, due to various reasons, the actual amount of gas treated is only 1.70*108 Nm3 per year. At the same time, the plant is undergoing upgrades to some of its systems. At this time, the gas processing capacity of the enterprise’s facilities should be 1.83 *108 Nm3 per year when there are five projects in operation, and it should be 3.30 *108 Nm3 per year when there are projects under construction. The output of the products produced varies depending on the consumption of raw materials, auxiliary materials, and fuel. 2. The equipment composition and asset value may vary. Production under the current conditions of the enterprise and production in the absence of any projects may differ significantly in terms of their objectives; as a result, the equipment requirements for each may also be different. Especially when the scale of production in the absence of projects is larger than that under current conditions, the equipment requirements for such production are much more complex. In addition, to maintain continuous production in the five-project state, it may be necessary to add some equipment, thereby increasing the asset value in the no-project state. 3. The lifespan of production equipment and products may vary. Production by a company in the five project states is a continuous manufacturing process over several years; during this time, there is inevitably the issue of aging of production equipment and products due to technological advancements, as well as natural wear and tear of the equipment. Therefore, when selecting data in a no-project status, the lifespan of production equipment and products becomes an important factor to consider. 4. The prices of raw materials, product prices, utility costs, as well as the wages and additional allowances for management and production staff, may vary, along with the standards for various costs and expenses. By comparing the current conditions of the enterprise with those in a state without any projects, it is possible that there are differences in the composition of raw materials and products, and therefore their prices cannot be the same. Even if the composition of raw materials and products is exactly the same, since the prices and various fees associated with the current operational situation reflect the state of that particular point in operations, while prices and fee standards in a scenario without such projects take into account not only the current operational conditions but also potential changes over the coming years, it represents a forecast for the future based on the current operational status. Therefore, there is a fundamental difference between the two. When using the before-and-after comparison method to analyze the profitability of expansion and renovation projects, in order to obtain incremental data, it is necessary to first determine the baseline data for both the project-present and project-absent scenarios. When selecting the baseline data for these two scenarios, the following points should be taken into account: ① The scope of economic evaluation for the project should remain consistent in both scenarios. Only in this way can data comparability be ensured. ②The benefit and cost calculation periods for projects and those without projects should be consistent to ensure comparability. ③It is necessary to determine reasonably the prices and charging standards in the project-free state; for both project-containing and project-free states, the same prices should be applied to identical raw materials and products, and the pricing of different raw materials and products should be comparable. ④In light of the specific circumstances of the project construction, properly address the potential production downtime losses that may arise during the project’s renovation and expansion phase. III. The difference between economic benefits and costs: Correctly identifying the benefits and costs of a project is a prerequisite for properly evaluating its economic benefits. Unlike new projects, the scope of renovation and expansion projects does not exactly correspond to the scope of the enterprise; therefore, it is somewhat more difficult to identify their benefits and costs compared to new projects. In the financial and economic evaluation of renovation and expansion projects, the benefits and costs of the project should be understood as those benefits and costs that arise within the enterprise as a result of the project. Therefore, the identification of benefits and costs should not be done by considering the project in isolation, but rather by placing the project within the context of the enterprise; only those things that lead to an increase in the enterprise’s inputs can be considered costs, while only those that lead to an increase in the enterprise’s outputs can be considered benefits. IV. Simplified approach to the economic evaluation of renovation and expansion projects. The analysis of the profitability of such projects generally requires the use of a before-and-after comparison method; in practice, this means calculating the benefits and costs for both the project-as-it-is and the project-after-renovation scenarios, as well as the difference between them, that is, the incremental data. This calculation method is not particularly difficult; it’s just that the computational workload is large and rather cumbersome. The challenging part is obtaining and determining the data. Therefore, when conducting a profitability analysis for renovation and expansion projects, the methods used should be simplified as much as possible, without compromising data quality or decision-making. In actual work experience, the author has found that in the following situations, the incremental data for a project is equal to the new data added. 1. Transfer payments that occur within the project itself can be excluded from the project’s benefits and costs. 2. Sunk costs are not considered as incremental costs; that is, the use of the existing fixed assets of the old factory and the capacity to utilize its existing fixed costs are not counted as incremental costs ； 3. The costs of constructing new facilities, upgrading existing equipment in old factories, demolishing obsolete buildings, as well as losses resulting from downtime or reduced production due to renovations and expansions, are all included in the costs of construction project renovations and expansions. 4. When identifying increments, if there are common elements between projects with items and those without items, they need not be considered.