W19_TH_Gas Dryer Feasibility Study: Replacement Analysis

1. Problem Evaluation

Beside CNG Compressor, one of the critical equipment on gas station is gas dryer.  The main function of gas dryer is to make sure that water content on gas pipeline meets the Ditjen Migas CNG specification; maximum allowable water content is 3 lb/mmscf.


Figure 1. Ditjen Migas CNG Specification

Based on the author company SOP life time gas dryer is 20 years, but in years 10th the molecular sieve of gas dryer must be replace with the new one combine with others equipment. In this unique situation trigger me to deep dive what the best alternative of gas dryer replacement: follow SOP, change new all, or leasing?

2. Development of Feasible Alternatives

In this evaluation there are three feasible options:

  • Follow SOP Policy (only change the molecular sieve at year 10th)
  • Change all with the new
  • Leasing

Author will analysis these three options which most efficient and also determine when Economic life of gas dryer.

3. Development the Outcome for Each Alternative

Two common methods in replacement analysis are present worth approach and Equivalent Uniform Annual Cost (EUAC). The reason why author chose those two methods because present worth method can calculate in present time how much the cost of two alternatives during economic life and from EUAC method I can get annual cost of each alternative with equivalent uniform/condition. Comparing the value of present worth and EUAC are the good way to know which the best alternative is.

4. Selection of Criteria

The Rule of thumb in present worth method; choose the Alternative with the highest value. The opposite of present worth method, in EUAC method we choose alternative with smallest value. The highest value of present worth method and smallest value of EUAC indicate the best alternative from economic perspective. And for the economic life is minimum total year by year marginal cost (minimum EUAC) in all period.

5. Analysis and Comparison of the Alternative

Defender and challenger data that will be used in PW and EUAC calculation are in the table below:

Table 1. Alternatives Data

After that is calculate data using PW and EUAC method. The Calculation result of PW and EUAC method are in table below:

Table 2. PW Calculation Result

Table 3. EUAC Calculation Result

Table 4. Economic Life of Alternative

6. Alternative Selection

Based on PW and EUAC calculation result, Change All Alternative is dominating over other alternative in both PW and EUAC Method. The PW of SOP Policy is greater than PW of Change All and Leasing (IDR -3,399,041,203 > IDR -3,420,207,693 > IDR -4,384,676,641). And SOP Policy has the smallest EUAC (IDR 755,806,075 < IDR 860,495,634 < IDR 1,204,210,589). Thus, the old dryer should not be replaced immediately with all new products (molecular sieve).

From the economic life evaluation we also get the optimum years of the dryer should be used. SOP Policy Alternative wills optimum in 5 years use and for change all will optimum in 4 years use. Based on PW, EUAC and economic life evaluation we get big picture of alternative sequence there is follow SOP Policy until 20 years then change the tank truck and trailer with the new one for 4 years using only.

7. Performance monitoring & Post Evaluation Result

Combination PW, EUAC and economic life evaluation will give you complete picture of alternative selection such as best alternative, sequence, and duration. It will help us to prepare all what it need, especially in alternative changing.


  1. Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 9 – Replacement Analysis., pp.427-466. Prentice Hall.
  2. Kullabs.com (2017). Note on Replacement Analysis and Economic Service Life. Retrieved from https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/6002
  3. Dhanu, Utomo. (2017). W13_UDS_Fuel Tank Truck|Emerald AACE 2017. Retrieved from: http://emeraldaace2017.com/2017/11/21/w13_uds_fuel-tank-truck-feasibility-study-part-1-replacement-analysis/

1 thought on “W19_TH_Gas Dryer Feasibility Study: Replacement Analysis”

  1. Same thing here, Tommy……. GREAT case study but where did your 15% MARR come from? Unless you can first justify that number, your whole analysis risks being fatally flawed.

    I am going to accept your blog posting but would urge you to at least go back and look at what Lita Lianna did http://pmworldjournal.net/article/using-analytical-hierarchy-process-determine-appropriate-minimum-attractive-rate-return-oil-gas-projects-indonesia/ and select the most appropriate MARR based on her research and not just randomly pick 15%?

    Dr. PDG, Jakarta


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