Notes from Jim Haughey

Jun 12 2006 12:22PM | Permalink | Email this | Comments (0) |
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It's the season to fill potholes and repave streets but there is not enough road asphalt everywhere so some new roads, parking lots and road repairs are being delayed. Asphalt usage more than triples during the June to September period, typically peaking in August. So far asphalt roofing had not been impacted as much but that may change and delay building projects as well.

There is no relief is sight through the peak road work season. But there is also no reason to expect the supply situation to be as big a problem next year.

Asphalt prices have been an annoying problem for more than a year due to the high cost of crude oil. There were brief, but serious, post-Katrina asphalt shortages and spring shortages in Hawaii and the Rocky Mountains due to short refinery shutdowns by the only regional liquid asphalt suppliers.

But now asphalt supply is threatening to become a national problem because of the ongoing shortage of refining capacity and new environmental mandates. Asphalt comes from the sludge at the bottom of a barrel of crude oil after the higher value jet fuel, gasoline, heating oil and diesel fuel have been distilled off.

Refiners have been pressured by public officials and consumer groups to maximize production of gasoline and heating oil. These demands do not make a barrel bigger than 42 gallons so some of the added production comes out of what otherwise would have been asphalt. Refiners run more light sweet crude which can produce less asphalt and process crude oil more intensely which leaves less sludge at the bottom to make asphalt from.

Added to this, Congress required refiners to remove most of the sulfur from diesel fuel this summer. This mandate resulted in additional shutdowns to changeover processes and provided more impetus both to use crude oil with less sulfur (and less sludge left at the bottom) and to distill off more products, also reducing the size of the bottom of the barrel.