Rising crude oil costs and refinery improvements are giving asphalt prices a steady push upward. In May, asphalt costs were 48% higher than a year ago, according to the Bureau of Labor Statistics’ Producer Price Index. And ENR’s 20-city average price for liquid asphalt is up 42% for the year.

The aggregate binder accounts for 40% to 60% of a paving project’s total cost, says Mike Pack, president of Frehner Construction Co., North Las Vegas. Dan Gallagher, vice president of operations for Thornton, Ill.-based Gallagher Asphalt Corp., says it is paying $405 per ton compared to $170 a year ago.

The nation’s refineries view liquid asphalt as a waste byproduct from the production of gasoline, diesel and kerosene. With light-sweet crude oil prices reaching $72.40-per-barrel in May—a 23% year-to-year increase—producing lighter-grade petroleum products is more profitable. Earlier this year, “there just wasn’t an incentive to make asphalt,” says Angelia Graves, a spokeswoman for Findlay, Ohio-based Marathon Petroleum Co. LLC.

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Refiners are adding catalytic cracking units, which maximize fuel production but leave little crude leftover for liquid asphalt. With ultra-low-sulfur emission retrofits and coker installations planned for 2008-10, fewer refiners are even offering liquid asphalt. “It’s not about getting a price,” Pack says. “It’s about finding a supplier who can supply you.”

After last year’s lag, liquid asphalt prices could range $400 to $600 per short ton over the next 12 months, say sources. “The price of asphalt is no longer going to be [for] a bottom-of-the-barrel waste product, based on the conversion value of running it through a cat cracker,” says Jeff Reed, president and CEO of Basic Resources Inc., Modesto, Calif.

Skyrocketing costs are forcing some states to cancel or shelve highway project plans. The Florida Dept. of Transportation was hit with “sticker shock” when bids came in 12% over estimate in 2005, says Ananth Prasad, the department’s chief engineer. It’s now seeing bids 26% over estimates, he adds.

The Nevada Dept. of Transportation recently canceled a project and delayed another when bids were 12% to 15% higher than expected, says Deputy Director Rudy Malfabon. The agency consequently is looking at using thinner road overlays, recycling asphalt and coating low-volume routes with a chip-sealant.

States where asphalt supplies are constrained are seeing fewer bidders due to the risks involved, says Don Wessel, general manager of Poten & Partners Inc., a New York City-based energy consultant. That’s especially the case when a price escalation clause for materials inflation is not available in contracts, he adds.

Transportation also is becoming an issue. West Coast states normally receive liquid asphalt from Rocky Mountain refiners by rail, but overburdened lines now are prompting some owners and contractors to pay for truck shipments from farther away.

Last year, refiners also experienced trouble installing equipment to make cleaner fuels in compliance with federal regulations that went into effect June 1, says Nasreen P. Tasker, editor of the Argus Asphalt Report, Trumbull, Conn. The longer than expected downtimes resulted in less liquid asphalt production and fewer supplies.

Such shortages helped push prices for liquid asphalt in southern California from $185 per ton to $375 over the last two years, says Tasker. In Arizona it rose from $185 to $360.

(Photo by Tudor Hampton for ENR)