Cylinder filling plants represent the very baseline of the packaged gas business in the industrial gas industry, a segment that is worth approximately $29bn (2015) according to gasworld Business Intelligence. Without them, there would be a considerable hole in the distribution chain.
But they are complex sites and require a great deal of equipment to run smoothly. There are often separate areas for filling industrial, medical and ultra-high purity (UHP) gases depending on necessity. There are testing labs, analysis areas, distribution centres – not to mention all the tanks, cylinders, valves and extra equipment that needs a home on the site.
Fill plants represent a critical link in the supply chain for packaged gases and making the right investment at the right time can be tricky. What is the typical return on investment for fill plants? How can you design one effectively to prevent outgrowing it? Is there the option to add on to a plant in the future? These are all typical questions that are raised when first considering a fill plant investment.
The ultimate question is; when should you invest in a fill plant to maximise said investment? Essentially, how do you go about such a task as designing a fill plant that meets all your current needs, but also keeps you from having to re-do the whole plant within a short time in the most cost-effective way? This article aims to shed some light on the do’s and don’t’s of making a fill plant investment with the help of one of the experts in the sectors, Weldcoa.
According to Weldcoa, the ebb and flow of fill plant projects in North America has been driven by changes in the marketplace, such as consolidation and economic megatrends like the oil boom, military action and offshoring.
On the back of this, Weldcoa President Hector Villarreal explained that there is no ‘one size fits all’ solution to making a fill plant investment since each distributor has a unique product mix. For his company, the process begins with an investigation into the quantity of gas required and over the years, Weldcoa has developed a model that dictates investments levels based on gas volumes.
Villarreal explained, “If the customer can give us a typical month’s worth of cylinder fills, we can provide them with options. Then, once we settle on an option we have to make sure that it will physically fit within the facility they have or that they plan on building or buying.”
Once Weldcoa is confident that it has provided the right amount of equipment for an optimised workflow, it assesses the client’s growth goals over a five-year period to provide a proper quotation that encapsulates a full 360 degree valuation of the project.
Villarreal added that it is important to think beyond just the fill facility in the early stages and consider how the fill process investment will affect the distribution side of the business, with filling and delivering on pallets proving to be the most efficient method in his opinion. He also went on to say that every distributor needs to consider what requirements and costs will be ordered by local and state jurisdictions in order to meet their codes. “Hire an architect to do initial exploratory ground work on this and meeting with the local fire marshal prior to any purchase may also save you a lot of time and headaches,” he explained.
I guess one of the first and most important things that companies want to know is how much they can expect to pay for the fill plant they need. So, how much could a customer be looking to invest in a fill plant today and what does that amount include?
“This is a really big question because our customers are not monolithic,” Villarreal continued. “You have your majors, then your large regional players, and then the midsize to small independents – each level has different requirements and budgets.”
“In regards to our equipment at Weldcoa, the span can start at $10,000 and go up to around $2m. We build fill systems for every level of budget from the smallest to the most sophisticated.”
However, he estimated that the average, mid-size capacity fill plant project will set the customer back between $1-1.5m. That figure includes all equipment and automation, such as bulk tanks, vaporizers, cryogenic pumps and associated piping, but excludes building and property costs.
“I suppose it can be argued that making a major CAPEX investment just prior to a recession is the wrong time – but I have several long-term clients who may disagree…”
One of the next key questions is the issue of timing. When is the right time to invest to get the most out of your investment? Villarreal said that the concept of a ‘right time’ is amusing. He said, “Typically, any fill facility built post-World War II has undergone very few changes; for those facilities, the right time to improve safety and efficiencies is today.”
“We are upgrading and expanding facilities that we built 20 years ago. Whilst they all still work as well as the day we installed them, the lessons we have learned on subsequent projects are yet to be implemented in those facilities. Once the upgrades are completed, the production improves, the quality goes up, as does safety – why would anyone wait to improve upon those things?”
With that in mind, let’s look at this from another angle – is there ever a wrong time to invest in a fill plant? Villarreal’s answer might surprise some. He said, “I suppose it can be argued that making a major CAPEX investment just prior to a recession is the wrong time – but I have several long-term clients who may disagree.”
As an example, he went on to disclose the story of Norco Inc., a large regional distributor headquartered in Boise, Idaho, who made a string of investments in its fill plant operations to consolidate several facilities under one roof before the ‘Great Recession’ of 2008.
Under this outlay, Norco brought its industrial, medical and specialty processes into the new facility at this time. The company also invested in palletisation and automation for the site, as well as a new air separation facility. Villarreal said he visited Norco shortly after it made its investment in early 2009 and apologised for what he considered to be bad timing, but revealed, “Norco told me that the new efficiencies that they gained had actually carried them through the recession and that they were able to ramp up their production so much faster than their competitors. In their opinion, the automation made the difference.”
So, how can companies future-proof their investments in fill plants and guarantee that their investment was worthwhile? Villarreal had a few parting words of wisdom for those looking to make the investment plunge with the overriding message being, why wait?
“The biggest mistake that I see companies make is that they spend 2017 dollars on 1980s technology,” he disclosed. “I’ve seen global juggernauts and tiny local companies alike make the same mistake – they take their hard-earned money and invest it in technology that is generationally old.”
“As an example, I don’t know anyone who would go buy a 1985 Zenith Box TV today and pay the same price as a 4k Ultra HD Sony TV; and yet it occurs all the time in the automation world.”
“If your current automation provider is selling you a control system that comes equipped with many keys and push buttons, you are buying the equivalent of a Zenith TV. Yes, it may work for a time, but you have guaranteed a very finite shelf life of your investment.”
“Lastly, in our experience, those that tend to wait for the right time are soon beaten to the table and then they find themselves in the dubious position of trying to catch up in order to stem the damage,” he concluded. “Improving [the] process should never end; investing in equipment that can do so is the key.”