Asphalt shortage delays road repairs nationwide

[November 10, 2008]  SEATTLE (AP) -- Expect a bumpier drive. An asphalt shortage is delaying road maintenance projects in communities nationwide. Asphalt is becoming scarce as U.S. refiners overhaul their equipment to maximize output of highly profitable fuels such as diesel and gasoline, using inexpensive -- and hard-to-process -- crude oil.

To make things worse, refiners are also cutting back on the production of a petrochemical that many states mix into asphalt to make roads more durable.

Dozens of road repairs were delayed last summer and municipalities around the country may face another shortfall next summer. Road-maintenance projects that have gone forward cost significantly more as the price of asphalt nearly tripled over the past year.

The dearth of asphalt compounds the challenges states, counties and cities already face in fixing bridges, highways, local streets and other critical infrastructure at a time when budgets are squeezed by falling income, sales and real-estate tax revenues -- not to mention higher costs for fuel, steel and other raw materials.

In Utah, as many as 50 road maintenance projects were delayed this summer by the shortage of asphalt -- including one for a highway that leads to one of the state's top tourist spots, Park City and its skiing resorts. Those delays add millions of dollars of extra costs, including labor.

"It strains an already strained budget," said Jim McMinimee, director of project development for the Utah Department of Transportation.

Municipalities in Alaska, New York, Colorado, Oklahoma, Idaho, Wyoming, Arizona, Nevada and Washington state also blamed road work delays on asphalt shortages.

In the past, about 40 percent of an oil barrel would be turned into asphalt products and now it's around 10 percent, McMinimee said.

In all, thousands of miles of highways, city streets and small country roads are being affected, state and industry officials say.

Some states, including Colorado, have responded to the problem by reducing the amount of asphalt required to be poured on a street. Others have changed the chemical requirements of the asphalt they use.

Usually, these methods lead to a shorter life-span for the roads, said Ben Teplitz, an asphalt expert for Platts, a trade publication.

Other municipalities are taking a second look at concrete, which for years was more expensive.

The U.S. is currently undersupplied by about 24,000 barrels of asphalt a day, or 5 percent of daily demand, and that number is expected to jump to 257,000 barrels a day by 2012, according to San Antonio-based NuStar Energy L.P., a producer of asphalt.

On average, about 5,500 barrels of liquid asphalt are needed per mile of paving, said Adan Carrillo, spokesman for the Utah Department of Transportation.

Teplitz said he couldn't quantify the shortfall of asphalt, but that the entire industry is foreseeing the availability of asphalt to shrink.

The shift in refinery technology that led to the decline in asphalt production was spurred by increased oil prices.

Oil refineries around the country are installing billion-dollar machines called "cokers" that are able to refine the chunkiest, low-grade and least expensive crude oil into highly profitable fuels, such as gasoline and diesel.

Contributing to the woes of those in need of asphalt is the lack of a chemical -- also derived from oil -- that is used to mix asphalt. Colorado's road-maintenance delays, for example, were directly related to the dearth of styrene-butadiene-styrene (SBS) polymer.

"The consequence of using less polymer asphalt is that roads won't last as long. That is, durability is being sacrificed for affordability and getting the job done," said Teplitz.

"The installation of cokers is pretty much a permanent change for refiners," said Ken Simonson, an economist for the Associated General Contractors of America. "More of them are likely to be out of the asphalt business and that will keep up the pressure on asphalt for some time."

Big companies that run a number of refineries around country have installed the cokers, including Tesoro Corp., Valero Energy Corp. and Marathon Oil Corp.

At the beginning of the year, a ton of asphalt -- or 5.5 barrels -- was selling for about $300. At one point the price rose above $800 per ton, said NuStar vice president Mike Stone.

Refiner Alon USA Energy Inc. said its net income nearly tripled in the third quarter to $37 million in part because asphalt prices surged 80 percent from a year earlier to $614 per ton.

In Colorado, more than 20 road projects have been delayed. In Washington state, at least three counties have announced delays as well. In Seattle, one local asphalt supplier was directly affected by the cutbacks at refineries, and that left two counties short of asphalt.

More cokers are scheduled to come online between 2010 and 2011, meaning the dearth of asphalt is only likely to become magnified, said Greg Matula, a spokesman for NuStar Energy. The company estimates that the nation needs about 500,000 barrels daily to keep demand.

There are signs, however, that falling oil prices will prompt some refiners to reconsider building new cokers as a way to rein in spending. For example, Valero executives told investors during a conference call last month that the company would scrap plans for a new coker at its refinery in Port Arthur, Texas.

NuStar, though, is banking on increasingly thin supplies of asphalt, and it has bought asphalt refineries in New Jersey and Georgia to benefit.

The skyrocketing price of asphalt has had at least one positive effect -- on the concrete industry, as its product becomes more attractive to city engineers.

But John V. Arroyo, Executive Director of Northwest Cement Producers Group, said it will take another eight to 12 months to know if the concrete industry will get more contracts, and that a broader economic slowdown will make an impact as well -- not just asphalt prices.

"There's been so much more awareness among public work staff because of high oil prices this year, just now they're starting to look elsewhere and look at other options," Arroyo said.

[Associated Press; By MANUEL VALDES]

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