Rising road costs, leaner paving plans
Saturday, June 24, 2006
Drivers know they're paying at the pump, but they might be surprised to know they're also paying where the rubber hits the road.
That's because the cost of asphalt -- the most common substance used for surfacing roads -- has recently spiked. The key ingredient in asphalt is petroleum, so as the price of crude oil goes up, the cost of roadwork follows.
"The long and short of it is the price of liquid asphalt has doubled in the past year," said Ric Neubert, president and CEO of Delta Asphalt Inc. in Cape Girardeau. "But the state highway budget and the local government budgets haven't been raised, so they're spending the same amount of money to pave fewer roads."
Asphalt, which is refined, then mixed with sand, rock and other aggregate products, is the heaviest byproduct of the crude oil refining process. It's a sludge at the bottom of the petroleum stew.
"It's basically a waste product, but it's a waste product we need," said Delta Asphalt construction manager Glen Graham.
Liquid asphalt typically makes up 5 percent of the final mixture that crews lay down on streets.
And the sticky black substance has become a pricey one. In July 2005, liquid asphalt cost $190 per ton, Graham said. Next month, the cost will rise to just over $400 per ton.
The result is that Cape Girardeau and communities nationwide are trimming down summer resurfacing projects.
"We're not going to lay fewer inches of asphalt because it still takes a certain amount to get a good product on the road and we need the same longevity. So we're just going to reduce the scale of the project to something smaller," said Cape Girardeau city engineer Jay Stencel.
The annual overlay project typically costs around $500,000, Stencel said, but this year the city will only spend $300,000 in the hopes that prices will stabilize or decline over the next year.
But Graham does not see lower prices on the horizon.
"It hasn't been a fluctuation; it's just been rising steadily. We've got a situation where the price is rising at a rate of $25 to $30 per month on the liquid side," he said.
That translates to a monthly increase for Delta of about $1.50 per ton in the aggregate asphalt product it makes called hot mix asphalt. Because of asphalt recycling, Delta does not pass all of the cost on to buyers. But some of it does get passed on.
For government entities, the added cost translates into tough choices. A 4-inch-thick asphalt overlay on a 30-foot-wide street requires 67,692 tons of hot mix asphalt per mile.
"I just hope the price comes back down, but it's a direct product of oil, so it follows whatever oil does," said Stencel.
Stencel said for the first time this year Cape Girardeau is experimenting with "white-topping" roads in certain areas around Arena Park. White-topping substitutes concrete for asphalt in the street overlay. Generally, concrete is considered stronger and more durable while asphalt is easier to repair and less susceptible to cracks.
Stencel also indicated the price of asphalt is being driven up by MoDOT, which is paving 2,200 miles of roads as part of its Smooth Roads Initiative.
"With the amount of work MoDOT is doing it's harder to find asphalt," Stencel said. "We hope that won't be the case next year."
But MoDOT chief engineer Kevin Keith said his organization has also been hit hard by the asphalt price explosion. "The Smooth Roads Initiative cost $400 million, and if we were beginning it again today that figure would be 25 percent higher. So rising prices always concern me because they mean we get less work done for the price we pay," he said.
Those in the asphalt industry point to yet another culprit. There has been a constriction of the market caused, they say, by refiners who are less interested in producing asphalt, which is far less valuable than gasoline. Typically 4 percent of a barrel of crude oil is refined into liquid asphalt residue. But refiners can increase or decrease that amount by using different methods.
"This is a choice by refiners who see there is more money and more demand for gasoline," Neubert said. "I'm not indicting those people. It's just a fact, and I'm concerned about it because I don't see that trend changing and I don't see us building any more refineries."
The two primary refineries servicing Southeast Missouri are the Conoco-Phillips refinery in Roxana, Ill., and the Marathon Oil Corp. refinery in Cattlesburg, Ky.
Marathon spokeswoman Linda Casey agreed the industry is moving toward higher gasoline production.
"As the demand increases, refiners are putting in more cokers," she said. "And what a coker does is, it breaks down the bottom of the barrel of a refined product which usually goes to asphalt and breaks it down so it can be used for gasoline and diesel instead."
Some would like to see an increase in refineries. "The problem with refineries is they're not building any more of them," Neubert said. "It's a billion-dollar task to build one. I hope there's some incentive when you look at the price and see because of lack of availability it's not going down. If we can't reduce our appetite or start building new refineries, we're going to be in this predicament for a while."
There are 149 oil refineries nationwide.
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* The cost of liquid asphalt is rising at a rate of $25 to $30 per ton per month
* The cost of hot mix asphalt is rising at a rate of $1.50 per ton per month
* It takes 67,692 tons of hot mix asphalt to lay 4 inches on one mile of road.
* MoDOT's "Smooth Roads Initiative," would cost $500 million or 25 percent more if started today due to asphalt and gasoline costs.
SOURCE: Delta Asphalt, Cape Girardeau city engineer, MoDOT