Low oil prices have translated into low prices for asphalt -- the lifeblood of the Arkansas Highway and Transportation Department as well as city street and county road agencies.
The Highway Department purchased an additional 30,000 tons of asphalt in the fiscal year ending June 30 for not much more than the $18.8 million it paid for the 242,338 tons it purchased in the previous fiscal year for its maintenance crews.
That extra asphalt is the equivalent of paving an additional 19 miles of a typical two-lane state highway, according to Tony Sullivan, the department's assistant chief engineer for operations.
The Arkansas Highway and Transportation Department paid an average of $72.88 per ton for asphalt used in its maintenance operations in the fiscal year ending June 30, a 6.5 percent decline compared with the $77.94 the agency paid in the previous fiscal year, which was a 10-year high.
Maintenance crews use asphalt, a petroleum-based product sometimes called bitumen, for resurfacing projects and filling potholes.
The asphalt used by contractors working on department projects is slightly more expensive, but the agency has seen a similar drop in price for that material.
Sullivan said the price the agency is paying for asphalt, which he says is the most common material the department purchases, is in line with an American Association of State Highway Officials report showing that state transportation agencies are reporting the lowest August prices for asphalt and related pavement materials since 2007.
The low asphalt prices are part of a national trend, Bud Wright, the organization's executive director, told the AASHTO Journal earlier this month.
"Since August is one of the busiest months for roadway infrastructure projects across the United States, the fact that [departments of transportation] are seeing the lowest asphalt prices for this month since 2007 means they can stretch their project budgets to cover more work," he said.
The asphalt the department obtains for its maintenance crews is not for a set amount but for a set price. Sullivan said that as a result, the savings won't necessarily show up in more asphalt available because while each of the 10 maintenance districts has a set budget, the districts have some independence on how the money is spent.
"You may choose to use the savings to buy something else," he said.
Arkansas highway officials are in the process of obtaining another contract for asphalt, the price for which could go lower. Danny Keane, head of the Highway Department's equipment and procurement division, said it is difficult to forecast asphalt prices, so the agency hedges by negotiating contracts three times a year.
During the spring and summer months, which is the height of the construction season, the department seeks two three-month contracts, he said. The contract the department is now pursuing is a six-month contract for the fall and winter months when the demand for asphalt is lower.
"I don't see [prices] changing that much," Keane said. "They will go down a little, but not a lot.
"We estimate everything. We are usually pretty good, But when something is petroleum-based, it's something you don't want to bet on."
The trend of falling asphalt prices reflects the low prices for petroleum from which it is made. The same trend is seen in the continued low prices for oil-derived motor-vehicle fuels. Oil prices have rallied over the last two weeks, but they have essentially remained between $40 and $50 a barrel for the past four months. Oil traded as low as $26.21 a barrel in February.
Still, asphalt prices haven't dropped as much as gasoline prices. According to AAA, the national travel club, the average price for a gallon of gasoline was $1.96 last week. A year ago, it was $2.34, or 16 percent higher.
Though both are derived from oil, gasoline generally is refined from light crude oil while asphalt comes from heavier part of the oil, said T. Carter Ross, vice president for communication for the National Asphalt Pavement Association.
"Different source oils have different amounts of that heavy fraction and the characteristics of it can vary from source to source," he said. "For a refiner, it is possible to process these heavy fractions into gasoline or other fuel oils, but the process tends to be energy intensive and expensive, so it's at economic decision at the refinery as to whether it makes sense to make asphalt or gasoline or diesel or fuel oil or something else."
They also serve different markets, Ross said.
"Asphalt and gasoline are both petroleum products but the manufacturing costs and demand curves for each are different, which means refiners value and price them differently," he said. "That said, asphalt prices are at or near their lowest point in years now."
Metro on 08/22/2016