Chemical production process portfolio optimization

Abstract

The Net Present Value (NPV) is typically employed as the profitability criterion to determine investment decisions in chemical plants. Such an evaluation is performed on a plant by plant basis and does not consider the portfolio nature of the chemical process industry in that a company typically owns multiple plants to produce diverse sets of chemicals. Portfolio optimization, which is employed in other fields to guide investment decisions, has not been applied in the chemical engineering domain. To close the gap, this work introduces the optimization of process portfolios based on Modern Portfolio Theory (MPT). The customization of the MPT method to the chemical plant investment problem is presented. The application of the method is then illustrated with a case study considering six plants. Identified MPT portfolios are compared against portfolios constructed based on two commonly used profitability criteria, i.e. Net Present Value and Return on Investment (ROI). The effects of annual and monthly profit variabilities and of economies of scale on portfolio selection are also explored. The results indicate that portfolios developed with the proposed MPT methodology can outperform those portfolios selected based on NPV and ROI.