Step 1: Understanding heat exchangers.
In a heat exchanger, the effectiveness is maximized when the temperature difference between the two streams is maximized throughout the exchanger. This is achieved in countercurrent flow configurations, where the two fluids flow in opposite directions. In this case, placing the process stream on the shell side and the steam condensate on the tube side enhances heat transfer efficiency.
Step 2: Conclusion.
The best arrangement for this heat exchanger is a counterflow configuration with the process stream on the shell side. Therefore, the correct answer is (1).