Refinery shutdown may impact asphalt supply, costs

Photo/Courtesy/Exclusive Paving

The full fallout from closing Flint Hills Resources North Pole oil refinery upcoming on June 1 might not be known until the peak paving season hits in late July.

The Flint Hills impending closure has put Interior fuel markets in flux and what it will do to the asphalt market in the state is still being sorted out.

Heavy “asphalt oil” makes up about 6 percent of typical asphalt pavement used on roads and runways. The remainder is largely a composition of sand and gravel aggregates.

Tom Dougherty, a construction engineer for the Department of Transportation and Public Facilities’ Central Region, said road and airport projects scheduled for the Central and Northern regions — virtually all of mainland Alaska — will require about 69,000 tons of asphalt.

There are still more paving contracts to be let, too, Dougherty said, but the number of projects the state has planned for 2014 is consistent with recent years.

“The issue we have now is the supply of the asphalt oil,” Dougherty said.

About 14,000 tons will be needed for Southeast, but that asphalt is shipped up from Washington, he said, making the market essentially separate from other work in the state.

Dougherty said most of the paving occurs from late July through September every year.

Tesoro Corp. spokesman Matt Gill said the company, which operates a refinery near Nikiski on the Kenai Peninsula, has been in discussion with the state about several issues since Flint Hills announced Feb. 4 it would close its Interior refinery.

“We feel confident we can meet (the state’s asphalt) needs,” Gill said. “It’s kind of hard not knowing exactly what Flint Hills was producing, but we feel we have the capacity to put out as much asphalt as people need.”

Flint Hills spokesman Jeff Cook said the company would not disclose how much asphalt oil it has produced in recent years.

Gill said he was unable to provide the information for Tesoro as well.

The state is unable to provide information on how much of the asphalt it used in years past was purchased from either Flint Hills or Tesoro because it acts as a third-party purchaser, with multiple private contractors buying the product from the refineries based on price and project location, Dougherty said.

Cook answered some industry speculation when he said Flint Hills would not be producing and storing any asphalt prior to complete shutdown of the refinery June 1.

Dougherty, Gill and Granite Construction business developer and estimator Mike Miller all said questions remain about whether the logistics side of the equation can be worked out to get asphalt from one refinery to all of the projects in Alaska on time. Gill said Tesoro has fielded questions from several Interior contractors along those lines and without having 100 percent of the information, answering them is a work in progress.

“Before we had a place in North Pole and a place in Nikiski — a pretty good spectrum of what we do on the road system here,” Dougherty said. “All of a sudden we can only get it from Nikiski and it’s 500 miles at least just to Fairbanks.”

Gill said Tesoro can fill one hot-oil tanker truck per hour around the clock if there is demand.

One tanker holds enough oil to keep a paving company busy on a job for about two hours, Dougherty said. Because the two-refinery system has worked well for years, there also is not a lot of heated storage available that is needed to keep asphalt oil liquid and usable, he said.

“There’s not a whole lot of plan B that’s been developed yet,” Dougherty said.

Miller said the state and the contractor for each project agree upon an asphalt price range. In that range the contractor absorbs any price changes; if the price changes to outside the range the state is usually responsible for making up the difference, he said.

“Prior to this year it was basically low-price” that determined where a contractor went for asphalt, Miller said.

A price index listed on DOT’s website shows an average “rack” price of asphalt cement from the refineries of $613 to $620 per ton much of last summer.

With heating and modifiers needed depending on the project Dougherty wrote in an email that the state typically pays about $1000 per ton for ready-to-use, delivered asphalt.

Gill said he doesn’t foresee Tesoro “jacking up the price just because there’s nowhere else to go” for asphalt in the state come this construction season.

Elwood Brehmer can be reached at [email protected].

03/26/2014 - 11:33am