The prices for petroleum-based products such as asphalt and polymer road overlays are on the rise as refineries adjust their production priorities to get more fuel from crude oil.
And that could have an impact on maintenance work and construction projects scheduled by the Utah Department of Transportation.
Jim McMinimee, director of project development for UDOT, predicted that completion of 10 percent to 15 percent of its projects may be in jeopardy if the cost for asphalt products continues to increase.
"We're remaining optimistic we'll be able to deliver projects," McMinimee said. "We may have delays, but we're hopeful the department will be able to pave everything this year."
In Utah, 97 percent of roadway surfaces are asphalt-based, but McMinimee said if prices continue to rise, UDOT in coming years may consider alternatives such as concrete.
Asphalt products are preferred because they are quicker for crews to lay and typically dry fast enough that traffic can begin crossing on the same day. While concrete is relatively cheaper, the curing times force longer road closures.
This year UDOT has about 120 projects on the books that require asphalt or asphalt-based surfacing. To complete this work, about 1.1 million tons of hot-mix asphalt, a product consisting of an asphalt binder and aggregate, will be required. In 2007, UDOT bid for 900,000 tons of hot-mix asphalt.
In June, a ton of hot mix cost about $108. In January it cost just over $60.
McMinimee said refineries are hesitant to predict the amount of asphalt they will be able to supply because production is directly linked to the demand for other petroleum products, such as gasoline and diesel fuel.
"They want to keep the supply flexible so they can make the decisions on what to produce," McMinimee said. "It's worrying we're having to compete for a product that has historically been available."
The binder used to create asphalt is a byproduct of the refinery process for gasoline, diesel fuel and jet fuel, said Larry Larson, vice president of SemMaterials, an asphalt producer and marketer in the United States and Mexico. As the demand for fuel has increased with rising prices, he said, refineries have improved the production process to get more fuel.
"Very few refineries made asphalt intentionally in the past. It came with the process," Larson said. "Refineries are opting to produce less asphalt than they historically have because of other demands on the market."
Larson said the demand on refineries for more fuel products has encouraged many of them to install cokers, distilling devices that further break down asphalt binders into smaller materials so products such as kerosene, diesel and petroleum coke are produced. The result is a lower supply of asphalt, and the effect can be seen nationally, he said.
"I think the supply will stabilize in 2009, prices will be higher, but eventually supply will meet demand," Larson said. "The word crisis is correct in some areas, though in others it is just an issue of allocation and proximity to refineries."
Yet for geographic areas such as Utah where extreme heat and cold wear roadways down at accelerated rates, stability could be further off. To ensure roadways here are optimal for conditions, UDOT requires its contractors to use asphalt products that have been reinforced with a polymer to resist weather and better carry large loads.
Polymer, like asphalt, is petroleum-based and suppliers are following market demands and choosing to adjust the refining process toward fuel products, putting additional limitations on Utah contractors' options for finding asphalt products.
"There is a strain on the supply of asphalt because refineries don't want to produce it," said Jim Golding, executive vice president for Geneva Rock. "And that's compounded by a shortage of polymer-modified asphalt that's needed to get UDOT's oil to specifications."
Golding said the shortage has put a strain on contracting companies because asphalt suppliers can't guarantee prices beyond a month. In previous years suppliers were able to guarantee pricing for a year, but now that pricing is frequently changing it is becoming difficult to bid out projects, Golding said.
"We're working with the contracting community and suppliers to get a better understanding of the situation and deal with the situation we are seeing," said Kris Peterson, director of construction and maintenance for UDOT.
The Salt Lake County Operations Division has been able to obtain hot mix at prices providers bid on during the spring because of the way it obtains contracts. Steve Sandoval, a construction supervisor for the division, said that while pricing isn't an issue now, the division may have to scale back projects in 2009 unless taxes provided from gasoline can compensate for an increase."We can see some significant increases in costs on the horizon for the 2009 paving season," Sandoval said. "One of our providers told us to expect a 62 percent increase, so we are meeting and holding discussions to see how we can handle the price increase next year."
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