The design benefit method for the allocation of joint costs: Application to a natural gas processing facility

Traditional cost allocation methods fall short of accurately proportioning joint capital and operating costs in oil and gas processing facilities. The highly variable inlet stream compositions as well as mix of equipment types common in these plants create problems with attempting to allocate joint costs on the basis of sales price or production parameter which are key to traditional methods. An engineering based alternative is essential for improved joint cost allocations.;This work applies engineering principles and modeling techniques to develop an improved method to apportion joint costs of production, particularly in a natural gas processing plant. The Design Benefit Method determines capital and operating costs on a unit by unit basis and as functions of the equipment size. Fractions of the unit that exists because eventual products utilize the unit during processing are established using the well known engineering principle of studying the variation of one parameter while holding all others constant. This allows a logical apportionment of the unit design size, and thus associated costs, to individual eventual joint products.;The Design Benefit Method is applied to a natural gas processing facility. Costs from the varied inlet streams and mix of equipment types in the facility are logically allocated to the joint product streams. The Design Benefit Method presents a logical alternative to traditional joint cost allocation methods that is backed up by solid engineering principles and design equations.