Besides the three most important variables, others must be considered. These are given in Table 2-3. For a given plant any one of these may be a reason why a specific location is preferable. Their importance is discussed in the following paragraphs.
Table 2-3
Important Things to Consider When Choosing a Plant Site 1. Transportation
2. Sources and costs of raw materials 3. Prospective markets for products 4. Corporation long range planning 5. Water source-quality and quantity 6. Special incentives
7. Climatic conditions
8. Pollution requirements (Waste disposal)
9. Utilities-cost, quantity and reliability; fuel-costs, reliability and availability 10. Amount of site preparation necessary (site conditions)
11. Construction costs 12. Operating labor 13. Taxes 14. Living conditions 15. Corrosion 16. Expansion possibilities 17. Other factors
Long-Range Corporate Planning
Most corporations have some long-term goals. Often these goals affect the choosing of a plant site. This means that each plant site is not considered only for itself and that its chosen location might not be the one that would be selected if only the economics of the one plant had been considered. The object of long-range planning is to optimize a whole network of operations instead of each one individu- ally.
The Stanford Research Institute is one of the proponents of long-range planning and has performed comprehensive studies for a number of clients.” The planners make proposals to the board of directors, which sets the general philosophy and
Other Site Location Factors 3 5
direction of the company. If there are no strong reasons for making exceptions, their guidelines are followed in selecting a plant site.
One decision they might make is whether to build huge industrial complexes involving many products and processes at one site or to construct many smaller plants. Traditionally the Dow Chemical Company has concentrated most of its plants in Midland, Mich.; Freeport, TX.;and Plaquemine, LA. DuPont, meanwhile, has put plants all around the United States. These are two of the biggest chemical companies in the United States. Concentration of plants at one site allows for greater integration of the processes, permits a concentration of research and de- velopment facilities, avoids the duplication of very specialized facilities such as machine and instrument shops, and permits closer scrutiny by top management. It also places all the eggs in one basket. The corporation is much more vulnerable to earthquakes, tidal waves, hurricanes, tornadoes, fire, floods, and strikes. In case of a major disaster, instead of losing at most a few plants, a large percentage of its operations could be destroyed. Placing the plants throughout the country allows each plant to be located optimally. It also makes it easier for a company to recruit employees who may prefer one specific geographical location.
Water
Water is needed by every processing plant for a number of different purposes. Potable water, which is generally obtained from municipal water systems, is needed for drinking and food preparation. Process water, which does not need to meet the standards set by the Public Health Service, is used in processing operations. It is often obtained from a well or unpolluted lake. Cooling water is the cheapest water available. Its source is usually a nearby river. The only requirement is that it can be easily and inexpensively treated to minimize the fouling of heat exchangers. Cool- ing water never comes in direct contact with the raw materials or products, whereas process water may.
The plant site must have an adequate amount of each type of water at all times of the year. The peak water demands usually occur during the summer, when rivers and lakes reach their highest temperatures and lowest levels. If nearby towns institute water rationing during parts of the summer, such a location should be dropped from consideration.
Not only the amount and quality but the temperature of the water is important. The size of a heat exchanger is inversely proportional to the temperature difference between the tolling water and the material being cooled. Since the plant must run at all times of the year, the heat exchanger must be designed using the maximum cooling water temperature. This will make the temperature difference a minimum and the heat transfer area a maximum. Since the average stream temperatures are highest in the south, the heat exchangers must be larger or the flow rates greater for plants located there. Also, refrigeration systems may need to be installed in the south that are not required in the north. Since refrigeration systems are expensive,
1 0 .-so ..lOO
)1 or more
U
ure2-6 Courtesy of Winton, J.M.: “Plant Sites ‘67,” Chemical Week,
“Plant Sites ‘67, Week, Oct. 28, 1967, 88. 2-7 Courtesy of J.’
Other Site Location Factors 3 7
this may make a far north location desirable. The average maximum and minimum temperatures of various surface waters are given in Figures 2-6 and 2-7. For more detailed information, see reference 12.
Special Incentives
Often the reason a given plant site is chosen is that special incentives have been offered by local authorities. In the mid-1960s, when money for financing was hard to obtain and interest rates were high, tax-free municipal bonds were an important lure. “Tax-free” means the investor does not need to pay taxes on his earnings. This means the bonds can be sold at lower interest rates and the company saves money. In 1967, $1,500,000,000 worth of these industrial bonds were issued. In 1968 the Department of Internal Revenue announced that in the future bonds used to finance private industry would be taxed regardless of who issued them. However, since then various loopholes have developed. Municipal bonds used to finance public projects such as schools, roads, and fire stations are stilI not taxed, since many communities would be unable to finance these projects at commercial interest rates.
Another special incentive is that of a free port. Usually this is applied for by a company together with a city and state. In a free port the raw materials have no import duty. This means the company can buy the feedstock abroad, process it, and then ship the products abroad without paying duty. However, if the product is sold to someone in the United States the import duty on the product must be paid. This is still frequently a good deal, since the tariff on finished chemicals is often less than that on raw materials. Also, because of inefficiencies, for each pound of raw materials there is less than a pound of salable product.
In the late 1960s the biggest incentives were available in Puerto Rico. As a result, petrochemical investments in Puerto Rico may exceed $1,500,000,000 by 1975. The major baits were tax exemptions and free ports. Companies making products not produced in Puerto Rico previous to 1947 (true for nearly any chemical) could be granted 100% income tax exemptions for up to 17 years. They were also allowed to avoid the import duties on certain raw materials. For instance, in 1970 (naphtha), an important feedstock for producing petrochemicals, could be obtained on the world market at half its selling price in the United
Climatic Conditions
Each part of the United States has different prevalent climatic conditions. When Corn Products Refining Corp. built a plant on the Texas coast they took advantage of the strong prevailing winds off the Gulf of Mexico. The buildings were con- structed without walls so that the wind could remove dust and obnoxious odors and prevent the accumulation of pockets of dangerous gases. The floors had a sizable overhang to prevent rain from damaging equipment.
In some parts of the United States special precautions may be necessary: the Gulf and Atlantic Coasts are noted for hurricanes; the plains states have tornadoes; and the highest probability of earthquakes occurs in California and Alaska. Care must also be taken when locating near a river to be certain that flooding, which is always a possibility, will not harm the plant. See references 12 and 15 for detailed climatic information.
Pollution and Ecological Factors
Certain areas are unusually susceptible to air pollution disasters. One during 1930, in the Meuse Valley of Belgium, caused the premature death of over 60 people. Another in 1948 at Donora, Pa., caused 20 deaths. A third resulted in the deaths of 22 people at Poza Rica, Mexico. The greatest occurred Dec. 5-9, 1952, in London, England. Over 4,000 people are estimated to have died from respiratory ailments as a result of the smog. Each of these occurred in an industrial valley at the time of a temperature
A temperature inversion is a climatic condition in which the temperature of the air near the ground is cooler than that above it. This typically occurs on a clear winter evening. The surface of the earth is cooled by energy being radiated into outer space, and the air nearest the ground is cooled by conducting heat to the cold surface. Since hot air rises, there is no tendency for the cold air near the ground to mix with the warmer air above. Should this occur in an enclosed valley, a relatively stagnant mass of air develops. If this air is being polluted by industrial wastes, gasoline fumes, furnace smoke, or other discharges into atmosphere, these will accumulate in the air, since it is not moving.
Figure 2-8 gives the average annual air inversion frequency throughout the United States. Figures 2-9 and 2-10 give a related variable: the average maximum mixing depth. This is the maximum vertical distance through which turbulent mixing occurs. The greater the average mixing depth, the lower is the probability that a dangerous concentration of air pollutants will occur. It is desirable to pick a site having few inversions per year and a high maximum mixing depth. This is especially true if the plant will emit any noxious vapors.
The Japanese, who are very concerned about air pollution, are investigating “floating petroleum refineries.” These plants would take on crude oil and produce liquefied petroleum gas (LPG), naphtha, kerosene, and heavy oil while en route to Japan. A conventional tanker would accompany this ship. Both ships would load up with crude and after the refinery ship had processed its own load it would be transferred on the high seas to the tanker, which would transfer its crude to the floating refinery. By the time they reached their destination all the crude would be processed. Any air pollution would occur on the high seas and not directly affect man.
Besides air pollution, stream and thermal pollution must be considered. All coastal and interstate waterways have pollution regulations. These basically set the maximum composition and temperature of plant effluents. As time goes on they will
Other Site Location Factors 39
Figure 2-8 Air inversion frequency.
Courtesy of Winton, J.M.: “Plant Sites Report ‘68,” Chemical Week, Oct. 5, 1968 p. 96.
Figure 2-9 Air mixing depths in January.
Figure 2-10 Air mixing depths in June.
Courtesy of Winton, J.M.: “Plant Sites Report ‘68,” Chemical Week, Oct. 5, 1968, p. 9 7 .
become more stringent and uniform. As with air pollution, any advantage to be obtained by locating in a state having low standards in these respects will be short-lived. (See Chapter 16.)
Some companies are considering the whole environment in planning large com- plexes. When planning for a refinery at Point Tupper, Nova Scotia, the British American Oil Company considered how this new industrial center would affect the neighboring towns. This is a very enlightened approach and should be done in all cases. However, with some communities luring industry it will be a while before most companies consider anything but their own needs.
Sometimes paying attention only to the mayor, the governor, and the chamber of commerce can backfire. In the first half of 1967 conservationists caused three different companies to change their plans for building multimillion-dollar plants at specific plant sites. In each case local residents felt that the proposed plant would in some way defile the beauty of the area. In all of them the company had been encouraged to build there by local and state authorities. Such bitterness was generated over a proposed plant in Cascade Locks, Ore., that the citizens recalled all but one of the councilmen and the city manager Because of the past and present practices of some industries, citizen protests are likely to increase. This will even cause problems for plants that would actually contribute to the commu- nity, since industry generally has a bad public image.
Other Site Location Factors 4 1
Utilities
Ever since the major power failure in 1965 that blacked out the northeastern United States, an important site consideration has been the reliability of electrical power systems. For instance, a 5-hour power failure cost a New Jersey firm two days’ downtime. In another case the Sun Oil Company’s 170,000-barrel-per-day refinery at Marcus Hook, Pa., suffered a $250,000 loss due to a 3 l/2-hour power failure. It was four days before full production could be restored. The problem is that there is no section of the country that has not had a major power failure.
To minimize damage due to power outage, the Celanese Corporation in their plant at Newark, N.J., instituted a policy of always generating half its own power. Merck & Company installed additional auxiliary steam power to insure constant refrigeration for its biochemicals at its West Point, Pa., plant. At Allied Chemical’s phenol plant in Frankfort, Pa., electric devices on air compressors and pumps were replaced by steam-operated controls, and diesel generators were installed to main- tain cooling water circulation.
Both the quantity and price of utilities are also important. This is especially true for electrochemical plants. Traditionally the Gulf Coast states and those regions covered by the Tennessee Valley Authority and Bonneville Power Administration (Northwest) have had the cheapest power. Now some large nuclear power plants that are being installed offer the promise of cheap power to other regions.
The factors to consider with regard to fuel are the same as for power: quantity, quality, and costs. The costs are given in Chemical Week’s annual plant site issue. This subject is covered more completely in Chapter 8.
Site Conditions
An ideal chemical plant site is above the flood plain, flat, has good drainage, a high soil-bearing capability (soil that is capable of supporting heavy structures), and consists of 1,000 to 3,000 acres (400 to 1,200 hectares). The number of plant sites that fit this description is rapidly decreasing; those available are increasing in price and often are only 1,000 acres (400 hectares). Costs of $10,000 an acre ($25,000 a hectare) are not uncommon for prime sites. However, usually the prices are under $2,000 an acre ($5,000 a hectare). In 1967 the Olin Corp. paid an estimated $540,000 for 27 acres (11 hectares) of land adjoining its plant site on the Houston Ship The land was to be used for a plant expansion and modernization. At the other extreme, Dart Industries paid $3,300,000 for 23,000 acres (9,700 hectares) in Kern County, Calif., in
Because prime plant sites are scarce and expensive, more and more is being spent to correct site deficiencies. One company spent over $1 ,OOO,OOO to make a usable site out of a 1 ,OOO-acre (400-hectare) plot. This high cost of preparing a plant site is one of the major reasons why plants often cost more than expected and why projects are not completed on schedule.
Construction Costs
One reason for the high costs of site preparation and for the high costs of building is labor. This usually accounts for 25% of the investment in a new plant. Construc- tion crews are not permanent employees of most companies. They are hired for the length of a construction project. When a company wants an electrician it calls the union, which sends the worker who has spent the longest time waiting for a job. When the job is completed the electrician returns to the union hall and waits for anotherjob. Formerly, even while he was employed he was only paid when he could work. If the weather was inclement this often meant he could not work, since most construction work is done outside. Recently some unions have gotten the employers to pay members a minimum of two hours’ salary each day regardless of the weather. Since traditionally the worker had no job security, often had to live away from home, and construction rarely took place in the winter and early spring (recent advances in construction techniques have now made this a year-round operation), the construction workers were paid a very high hourly wage. This is still true.
When there is a rapid increase in industrial and private building, construction labor is usually in short supply. Under these conditions companies must often guarantee two hours’ overtime per day and ten hours of overtime per week in order to get workers. All overtime is at least at the time-and-a-half rate, and usually anything over 50 hours per week is at double the base rate. For electricians, all overtime costs the company twice the usual rate. Under these conditions it was not unusual for a man in the building trades to earn over $500 per working week in 1972. Overtime is especially costly because after laboring eight hours a man’s effi- ciency is less. He is naturally tired. Some employers have claimed that when a worker puts in two hours of overtime they get only about one hour of services. This means a company may pay for twelve hours of work at the base pay rate and effectively get only nine hours of work per day. This could increase the cost of construction labor by one-third or the total cost of constructing the plant by over 8%. The average construction costs index by state is given annually in the “Plant Sites” issue of Chemical Week and by the Federal Department of Labor.
Operating Labor
The salaries of construction laborers may be an important consideration, but generally the salaries of plant operators are not. In general the chemical industry is highly automated and has relatively few hourly employees. These, however, often need special skills, and the availability of these talents is more important than the hourly wage.
Other Site Location Factors 4 3
Taxes
There are as many types of taxes as there are ways to raise money. Each state has different regulations and they change frequently. To keep up with these, reference 22 should be consulted. A brief explanation of a number of different types of taxes follows. The first six are the most common within the United States.
Income Tax
This is a tax on a person’s or company’s income. It is often graduated. That is, the rate of the taxation depends on the amount earned. Federal income taxes are based on profits. Before figuring this tax all expenses legtimately incurred may be de- ducted. Most large corporations in the United States pay around a 48% federal income tax. This means 48% of their profits are taken in taxes by the federal government. Nearly all states and some cities also have income taxes. Some of these are based on total sales, but most are based on profits. Federal income taxes may or may not be considered as an expense.
Sales Tax