Asphalt shortage makes recovery rough

Marketplace Staff Jan 6, 2009

Asphalt shortage makes recovery rough

Marketplace Staff Jan 6, 2009


Kai Ryssdal: If Congress gives him everything he’s asking for, Barack Obama’s going to wind up spending hundreds of billions of dollars on infrastructure. That could prop up the economy and create jobs in a hurry.

But building and repairing all those roads and bridges is going to require lots of asphalt — the black, sticky stuff that holds together more than 90 percent of our roads. Trouble is, there may not be enough of it to go around as Joel Rose reports.

Joel Rose: I’m driving on Interstate 295 south of Trenton, N.J. This is an older concrete roadway. And as you can hear, it’s starting to wear out in places. This road would be among the first to be repaved — if New Jersey gets the money it’s requested from a federal infrastructure spending bill.

Erin Phalon: We could begin awarding contracts for these as soon as we have funds to do that.

New Jersey Department of Transportation spokeswoman Erin Phalon says there are more than $300 million worth of “shovel-ready” paving projects in her state alone. Nationwide there are thousands of miles of road and bridgework just waiting for federal money. But all those projects depend on one extremely volatile commodity: asphalt. Last summer, the price nearly tripled in some places, which forced states all over the country to cancel paving projects. Since then, the price of asphalt has been falling almost as fast.

Ben Teplitz: The tail that wags the dog is the price of crude.

Ben Teplitz covers the asphalt industry for the trade publication Platts Oilgram. Asphalt is made from oil — specifically the heavy stuff at the bottom of the barrel. Teplitz says refiners are typically more focused on making gasoline, because that’s usually where the money is. Not right now.

Teplitz: The last time I checked, it did not pay to make gasoline, but it paid to make asphalt. The difference was over $13 a barrel.

So the last thing you’d expect is refiners to cut their asphalt production. But that seems to be exactly what many are doing. Before the price of oil collapsed, gasoline refiners started investing billions of dollars in new machines called cokers that can squeeze even more gas out of a barrel of crude.

Still, there’s at least one company that’s sticking with asphalt. Mike Pesce is vice president for refining at NuStar Energy. He’s driving me around an asphalt refinery in Paulsboro, N.J., just across the river from Philadelphia.

Mike Pesce: For asphalt plant, this is the largest on-purpose plant in the United States. We have another refinery in Savannah, Ga. It’s No. 2, or pretty close to No. 2 in size.

NuStar bought both of those refineries last year for upwards of $450 million. The Paulsboro plant alone pumps out more than 70,000 barrels of asphalt a day — enough to supply much of the asphalt for eastern Pennsylvania, New Jersey and New York City. Standing in front of a jumble of pipes and smokestacks, Pesce is hoping this plant will soon be pushed to capacity.

Pesce The U.S. overall has a net shortage of around 20,000 barrels a day of asphalt. If these projects come in as we’re seeing them come in, you’re looking at a potential of extra demand in the United States of around 250,000 barrels a day.

And Pesce hopes that will keep asphalt refiners in the black for years to come.

In Philadelphia, I’m Joel Rose for Marketplace.

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