Engineering tomorrow – plan to succeed

Well-considered early engineering plays a vital role in the successful transition of energy infrastructure projects from plan to construction.

We hear from Jake Martin, Business Development Manager, Energy Transition Projects, about what is needed to get projects - from offshore wind to hydrogen development, carbon capture and storage and waste-to-value - from the drawing board to construction.

Off the starting blocks

“As the global energy market adapts to meet net zero targets, we are seeing an increasing number of energy transition projects coming to market. To move from the design to construction phase, each project will need to produce a compelling case for a Final Investment Decision (FID).

“The market is rapidly changing, and governments across the world are adapting regulations and targets to meet the needs of the energy transition. Their plans include significant commitment to financial support and investment. In the UK the government is set to support an additional 875MW of low-carbon production capacity through its recently opened HAR2 funding round.

“In Europe, various governments are also making substantial investment commitments. The global race to decarbonise is on. Being early to market will bring significant political, social, and economic advantages for first mover nations, and drive future exports in technology and “know-how” in these new market sectors. One obvious benefit will be to increase citizens’ access to skills, jobs, and technology to help drive sustainable economic growth in a net zero future.

“It is no longer the case of ‘is it coming?’ The starting gun has already been fired. 

• The Netherlands is expected to increase its output of green hydrogen [1]
• Germany has a $1bn scheme to subsidise green hydrogen projects.[2]
• France pledged to commit €20bn in tech, and Hydrogen energy innovation before the end 2024.[3]

“Despite this support and the obvious direction of the market, there will be many projects that falter at FID – which is why ensuring they don’t is critical.

Why is front-end engineering so vital?

“Applicable to all funding routes, be it a private investment, government-driven funding allocation rounds or innovation funding in the EU, high quality, innovative and thorough front-end engineering is fundamental to advancing projects through to the next phase of development.

“At a conference earlier in the Summer, a major banking entity was talking about the importance of enabling bankable projects. 
However, when projects got close to FID, obtaining bankable performance guarantees were difficult to achieve on “First Of A Kind” (FOAK) project. In addition, levels of contingency for both cost and schedule overruns were difficult to agree.

“Their request was for project plans to be realistic, honest, and transparent about the journey to get to FID. Using very conservative models and schedule is key - even if it means starting with a higher price for the final product – it’s the journey on how you will reduce that price over the life of the project that is critical.

“Proving the technology and asset will work safely is fundamental for success. Some teething issues with new technology is to be expected, but having an initial project that works well, and safely, is the first step. Learnings from this first project will permit further expansion or future similar projects, where the FOAK risk is lower and reasonable performance guarantees, schedule and cost can be estimated, based on lessons and actual performance on the initial project.

Taking the first step with care

“But what constitutes a good Pre-FEED or FEED and why is it critical to get endorsement with the stakeholders who will be making the investment decision for FID?

“Pre-FEED and FEED work is crucial to bridge the gap to FID, but it needs to be well considered, robust and of high quality.

“Pre-FEED is the first gate of any major project. This is where early thoughts take more form, and initial requirements are reviewed to define the optimum solution. This is a fundamental step in transitioning to a FEED as risk mitigation occurs, design considerations begin, and the process of turning ideas into an economic and constructable project starts to take shape. Decisions made in pre-FEED can have major impacts on the eventual project economics, safety, and constructability.

Lessons from oil and gas projects

“Pre-FEEDs aren’t new. They have been the cornerstone of complex projects for traditional oil and gas developments for decades. There are even formal steps before a pre-FEED that can be applied too, where conceptual designs are developed, and the feasibility of all types of options assessed. For larger projects, these usually consider everything from legal to operational, financial, and planning and permitting perspectives.

“During this phase, the design team considers all the engineering deliverables, from materials selection, baseline specifications, and processing requirements right down to the balance of plant requirements. This is where we lay down the foundations for the FEED work that follows. This is also an important gate for deciding whether to continue or not – projects sometimes don’t pass pre-FEED due to the learnings at this phase. This is the time to identify unrealistic projects that need to be paused or parameters reassessed before they get to FID.

“We also consider the Technology Readiness Level (TRL) during pre-FEED. There are much lower project risks in technologies that naturally have higher levels of TRL versus those that don’t. But this doesn’t mean that lower TRL applications can’t be considered, we need innovation to meet the energy transition targets. The aim is to ensure there are sound plans to mitigate the risk that comes with a lower TRL.

“At Petrofac, we have delivered thousands of front-end engineering projects and more than 200 EPC projects, following these cycles multiple times. We apply this knowledge to equally complex energy transition projects, applying our knowledge to leverage our supply chain, provide realistic cost estimates and outline operational philosophies.

Success lies in understanding the detail

“FEED starts to knit together the potential of all the work done to date, securing confidence in the whole work package. As we work up to that critical FID, we need to be achieving a Class 3 estimate as a minimum (this, as classed by the AACE guidelines, is a preliminary estimate with an expected level of accuracy of +30% in the high ranges to -20% in the low). Often, we also move to a Class 2 (+20% to -15%) also, which involves significant supply chain engagement to firm up prices for much of the equipment.

“FEED will start to firm up this cost estimate according to the class of estimate required for both the CAPEX and OPEX. Here major components of the project are agreed, priced, and selected. Prior to FID, the project owner will need to confirm their supplier agreements for offtake, and ensure all planning, consents and permits are in place. The equipment and licensor supply chains will have committed offers based on quantities and price based on successful FID, contracts agreed ready for execution and the final project EPC offer locked down (Note, this can change after FEED as modifications may need to be made).

“Accuracy is paramount here, if we can get to high level of pricing certainty then we are in a good position to confidently enable our FID decision-maker alongside the project developer to make informed decisions.

“Additionally, we need to make sure that the FEED provides clarity of OPEX costs accrued throughout the project life cycle too, including risk mitigation to prepare against future challenges that could be foreseen and prepared for in advance.

“Once a FEED is completed, deliverables are finalised and compiled for FID assessment. This includes everything you can expect of a complex project, be it process flow diagrams (PFDs), Computational Fluid Dynamic (CFD) assessments and comprehensive calculations around everything from mechanical, electrical, and thermodynamic assessments.

What does good look like?

“A good FEED identifies everything from risk, costs, other surprises, prerequisites, and estimated schedules for the construction of the plant. A well-considered risk register is a key output from FEED. It can also help project developers identify and mitigate key risks of their projects and help protect their CAPEX budgets as well as their schedule.

“In parallel with the technical output of FEED, the project developer also needs to tie up their offtake agreement, planning and permitting requirements, financing packaging, regulatory approvals or any wider stakeholder engagements needed. A strong and robust FEED, which proves a project’s executability at the FID stage, is the cornerstone of the FID assessment.

Time well spent

“We all need these projects to get moving quickly, but not planning carefully and considering every eventuality will not make them happen any quicker. So do not rush the FEED phase. Time spent in early engineering is never wasted, as an optimised and through design should minimise changes later in construction – which is a far more expensive and laborious process.”