ased in Windlesham, in the affluent borough of Surrey Heath, U.K., that is known for its knowledge-intensive companies and pharmaceutical expertise, industrial gas company The BOC Group employs more than 44,500 people and had 2003 sales of over US$7.4 billion. It also serves almost any industry you can think of: glass to steel, semiconductors to healthcare, oil refining to food processing.
BOC has begun work on five continents to build more than a dozen hydrogen plants and has increased its total hydrogen production to the global refining industry by more than 35 percent in the past year alone. The company’s newest hydrogen plant came on stream in late 2003 at Citgo’s oil refinery at Lemont, Ill. Subject to pending tax incentive approval, construction on its next one was to have begun in November 2004 in Toledo, Ohio, where the $100-million project will service oil refineries of customers BP and Sunoco.
“The Toledo initiative brings BOC’s total investments
in the global oil and gas industry to more than US$350 million over the
last 18 months and builds on BOC’s significant presence in Ohio and the
U.S. Midwestern states,” said Alan Iantosca, global vice president, BOC
Process Systems, at the October 2004 announcement. BOC will also provide
steam to the Sunoco refinery from the facility, which will be located
at the Sunoco refinery. The hydrogen will enable both customers to meet
production requirements for cleaner-burning, low-sulfur gasoline and diesel
fuels that meet or exceed the standard set by the U.S. Environmental Protection
Agency’s Tier 2 clean fuels regulation.
Of course, Toledo is the site of the DaimlerChrysler
project that caused a federal appeals court in 2004 to declare 
Ohio’s
machinery and equipment tax incentive program in violation of the commerce
clause of the U.S. Constitution. But that hasn’t slowed this project.
Peter Garra is director of real estate for BOC Group, where he has worked for 15 years. Working within the legal services department out of the company’s Murray Hill, N.J., North American headquarters, he oversees activity in the U.S., Canada and most of the Americas. He currently serves on the board of the Industrial Asset Management Council, and heads that organization’s membership committee.
Garra readily admits that the BOC name is not on the tip of consumers’ tongues. But its products and services are frequently at the wellspring of many consumer companies’ value propositions.
Site Selection:
Describe the Toledo project.
Peter Garra: We’re the world’s leading supplier in hydrogen, so the project is not a new concept, and multiple customers is not anything new either. The theory behind running a pipeline is that getting huge quantities at low cost to customers warrants putting in a pipeline or serving by other means like on-site tanks. But for major users, the pipeline is the least-cost option, and delivers the higher volumes more effectively.
The most expensive part is the plant itself. Plant, machinery and equipment is a significant part of it, but the pipeline itself, and the maintenance of it, is a sizable investment as well. Due to the nature and amount of investment on this project, we anticipate being around for quite a long time. In this instance, our product will enable the refineries to produce the lowest sulfate fuels and cleaner burning fuels. The positive environmental nature of the fuel is the driver for our product. As for the steam sales, byproducts are indicative to a lot of these plants – steam, CO2, that’s just the nature of the industry.
SS: In a
case like this Toledo project, is the site selection process driven more
by your needs or the customer’s?
Garra: It’s a combination of both. The need for the product is the driver for the plant, but where to site the plant becomes something we do on the real estate side. Whether it’s a third party or a customer site is something we determine throughout the project, and it begins during discussions with the customer for delivery of product. We get a handle on volumes and so forth, and look at where the best place to site the plant would be. It’s all done at the same time during the initial phase of the project, from the selling of the commodity to the actual design and construction of the plant. [In this case] there is significant pipeline attached, and distances involved. It all began about a year ago.
Obviously we’re very sensitive to our customers’ needs. We also have a lot of the same concerns any industrial company would have in terms of environmental impact. We are a community-oriented organization. Siting of any of our plants needs to take into consideration the immediate surroundings. We have excellent relationships with our customers, and the parties work together in trying to site the best locations, for both the business operations and the community.
For this project, we worked with the real estate and legal departments at both BP and Sunoco. No public hearings were required. Construction of our plant needed to be run by the local municipalities, and done in accordance with regulatory standards.
Obviously the ability to serve multiple customers is a considerable benefit, in terms of size, sale of product and cost efficiency. It benefits the other side as well, for both refineries, to get large quantities at low cost – one of these win-win situations you always hope to get to in business.
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| Macy’s Gives Thanks to BOC Group: Dr. Seuss’ Cat In The Hat hovers over a New York City street during the annual Macy’s Thanksgiving Day parade. For 10 years, BOC has supplied between 12,000 cubic feet and 25,000 cubic feet of helium for each balloon, depending on its size – about enough helium to lift a small car. For the parade giants, BOC supplies 400,000 cubic feet of helium in all, delivered in liquid form by truck from a plant in Otis, Kan., then vaporized at a plant in Middlesex, N.J. |
SS: Describe
the scope of your job, the real estate portfolio you manage and how your
real estate department works with the parent company.
Garra: We’re organized,
from the Murray Hill office, for all of the Americas and Canada. The rest
of the globe is handled individually, and I have a counterpart in Windlesham
who handles most of Europe. Right now we’re trying to decide how best
to handle the global portfolio. Within the U.S. and Canada, my portfolio
ranges from small retail-type sales offices to large plants. In Canada
alone, we have over 200 leased properties and on the owned side, we have
sold off some of our small retail establishments. We have about 85 owned
properties in Canada. Our holdings occupy about 1,200 acres [486 hectares]
around the U.S. and Canada. And those facilities range from vacant land
to land to support plants and operations, to headquarters and office and
distribution space. Of our Americas properties, three quarters are in
the U.S., and 90 percent of our owned properties are in the U.S. We also
have a significant pipeline network around the U.S. – around 220 miles
[354 km.] of various pipelines that serve our customers and take all our
product, from nitrogen, oxygen and hydrogen to argon and CO2. The larger
quantities are generally indicative to one of our pipelines. We also distribute
a host of industrial gases delivered via cylinders and liquid tanker trucks
right to customers.
SS: Describe
the extent of your activity in Canada and Mexico, and their business climates.
Garra: Canada has always been a very strong growth area for us, and we are all over Canada, not just Alberta. Our Canadian headquarters is in Mississauga. We are encouraged with our market share in Canada, and we expect that to increase over the years. Last year we made a major acquisition in Canada, purchasing a sizable portfolio of industrial gas business from one of our competitors. [In March 2003, BOC purchased for approximately US$50 million the Canadian packaged gas and welding equipment businesses of Air Products, adding four plants and 25 other facilities to BOC’s Canadian portfolio.]
Certainly the U.S. is much more regulated than Canada. As a result of that, we can turn around projects in a shorter time frame than in the U.S. That’s not a bad or good thing, but the climates are different. It’s similar to doing business in a large town as opposed to a small town. In Canada, there’s a small-town mentality, so as a result it’s easier for businesses to expand, generally speaking of course. Some pockets are more regulated.
We have a large presence in Mexico, but I’m not actively involved recently in Mexico. We have a huge presence in a project for PEMEX, a series of air separation plants used to pressurize oil fields in the Gulf. That’s a huge project for BOC, and we’re committed to the long term, and working very closely with PEMEX as well as the Mexican government.
SS: How
do BOC’s real estate teams manage projects?
Garra: Traditionally
speaking, some of our offshore projects have been done with joint venture
partners, who are well established in those geographic regions. We’ve
relied on a JV partner to shepherd the real estate part of that project
through. We’re taking a very close look now to see if we can add value
from a global perspective, and work alongside our JV partners to add value.
We are a streamlined organization, not top-heavy at all. The number of
real estate professionals is extremely limited globally, and we’re sensitive
to not overextending our staff, but we have a fiduciary responsibility
to make sure real estate is managed effectively and completely. For the
areas under my control, staff is two people, plus an administrative assistant,
and in the U.K., we have a similar sized staff. We’re not at all contemplating
outsourcing – it’s a 
matter
of managing it in-house, and making sure we have expertise everywhere
we need it.
SS: In which
industry sectors are you seeing strong activity?
Garra: We’d love to see more activity in the semiconductor market. Our distinct feeling is we’re at the bottom of the trough. We, along with other suppliers to the semiconductor business, are waiting for the upturn to take hold. We are starting to see more activity in the petrochemical business. There is sporadic activity on the steel mill side, but the steel industry has been down for a number of years, and we’re cautiously approaching that one as well. Certainly the hydrogen market is a strong one for us, and one we believe is a very active market, and will be for years to come. We had some strong activity over the last year or two in CO2, on the industrial side as well as the food-grade beverage side. We serve Coke and Pepsi, and we just completed a CO2 rail depot in Sparta, N.J., which will serve all the Northeast.
That was an interesting project. We worked very closely with the New York, Susquehanna & Western railroad, as well as the township of Sparta. We needed to secure a site adjacent to rail, so we could bring a significant quantity of food-grade liquid C02 into a transfer facility. We bring in about 89 railcars per day of liquid CO2, unload them into our storage tanks, and then truck them directly to our customer locations in the Northeast.
This is a prototype for facilities that will be built around the U.S. and probably around the world as well – state-of-the-art, attractive, and very efficient. It’s part of what we call our process gas solutions business. It was all in-house grown, and it was a project that was necessary to service our customers throughout the U.S., though we specifically targeted the Northeast for this type of facility. It took us the better part of a year to hone in on the design and construction of the plant, and we got a very positive reaction from Coke and Pepsi, as well as other customers.
SS: What
will that facility save the company?
Garra: I don’t know what the savings will be, but it’s more a factor of delivering product on time, and not running out of product for our customers. We’re already involved in several similar-type facilities throughout the U.S. Before, we would take product from other locations around the country, and it may not be the most effective or efficient use or way to deliver the product. So we as a supplier had to scramble to make sure we would meet our customers’ needs.
Similar types of facilities really depend on the product itself – some are high volume and low price, some are the opposite. Physical distance to customers may not be that big an issue, because transportation costs are not that critical. But for nitrogen, a high-quality product, we’d want the source to be as close to the customer as possible, because transportation costs are then lower. And that’s tractor-trailer loads, as opposed to individual cylinder loads. For atmospheric gases, we will construct plants throughout the U.S. and ship that product via trucks or pipelines throughout the area. There is a radius for how effective it is to ship that product, and anything outside that radius becomes a higher cost. That radius changes along with what type of gas you’re talking about, and compressed gas is easier to ship. Liquid would vaporize during transportation – it’s all a matter of cryogenics.
SS: It’s
interesting how the pipeline portion of BOC’s portfolio parallels real
estate holdings in the railroad and utility sectors. Describe how you
manage it.
Garra: It differs because railroads and utilities have a right of eminent domain, whereas a private industry does not have that right. A large percentage [of pipeline property] is along railroads – we place it along their right of way, where they have an easement, or own that stretch. Outside of that, I’d have to negotiate with individual landowners, whether individuals, corporations or municipalities. It can be challenging at times. One of the first things we do is try to identify that routing, in terms of what’s most efficient from Point A to Point B, in the least miles necessary. But we also look at constructability and type of land ownership, and which would have the most chances of success. And then anywhere, there are issues like wetlands, topography, railroad and street crossings. Then it becomes an issue of constructability.
SS: Especially
with your activity in Toledo, do you have any observations about the recent
federal appeal court ruling that declares Ohio’s machinery and equipment
tax credit in violation of the Commerce Clause of the U.S. Constitution?
Garra: BOC shares the concerns of its customers and business partners with regard to the Court’s recent decision to strike down the tax incentive program. Unfortunately, the uncertainty of the issue will no doubt continue until it is ultimately presented to and ruled on by the U.S. Supreme Court. The magnitude of this decision is extremely far-reaching. It puts in question not only new incentive package proposals, but those which have been granted over the years to help spur industrial development and job creation in many geographic areas.
Those existing contracts were willingly executed between companies, economic development agencies, states and municipalities, and specifically detail the nature and extent of incentives which formed the basis of decisions to move forward with projects, the construction of plants and, ultimately, employment of new workers.
Not only must we consider the impact on the larger projects which utilize the various programs, but the many other smaller projects and their workers which subsequently developed as a result of the larger project coming to fruition. On the positive side, however, there does not seem to be an issue with the property tax incentive or sales and use tax incentive components of these programs. The property tax and sales and use aspects of the various incentive programs are traditionally what BOC avails itself of, given the capital-intensive nature of our plants. Naturally, BOC will continue to monitor this issue carefully as it makes its way through the judicial system.
