Page 325 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

product selling price are noted. The maximum positive and negative deviations are +77¢/gal (+33%) and
–54¢/gal (–50%). To illustrate further the effect of these deviations on profitability calculations, consider
a new refinery starting production in late 2001. For this new plant, the selling price for its major product
(gasoline) over the two-year period after start-up is significantly below that predicted by the trend line. If
this refinery were contracted to buy crude oil at a price fixed previously, then the profitability of the plant
over this initial two-year period would be severely diminished and it would probably lose money.

Figure 10.10 Average Price of All Grades of Gasoline over the Period January 1996 to June 2007 (from
www.eia.doe.gov)

From the brief discussion given above, it is clear that predicting or forecasting future prices for chemical
products is a very inexact and risky business. Perhaps it is best summed up by a quote attributed to
“baseball philosopher” Yogi Berra [4]:

“It’s tough to make predictions, especially about the future.”

In the following section, it will be assumed that such predictions are available and will be used as given,
known quantities. The question then is how much meaning can be placed on the results of these
predictions when the input data—the basic variability of the parameters—is often poorly known. The
answer is that by investigating and looking at how these parameters affect profitability, a better picture of
how this variability or uncertainty affects the overall profitability of a project can be obtained. In general,
this type of information is much more useful than the single-point estimate of profitability that has been
considered up to this point.

10.7.2 Quantifying Risk