Summer 2006, and perhaps another reason to choose the road less traveled: fewer potholes.
Asphalt today is in what concrete was last year, and steel before that: very, very short supply. In a hot economy in the midst of a feverish development season, construction companies, pavers, state transportation officials and homebuilders are feeling the squeeze. Consequently, motorists and homebuyers are, too.
"I just came from a meeting at Daybreak, and the gist of the conversation was asphalt," said David Irwin, spokesman for Utah-based Hamlet Homes. Hamlet is building its Eastlake Village development at Daybreak, a master-planned community in South Jordan.
"Asphalt is becoming almost as expensive as concrete, and that cost, as well as other homebuilding costs, are going into increasing the overall price of homes," Irwin said.
The lack of asphalt made its way into Ivory Homes' president Clark Ivory's remarks as the company celebrated the completion of its 10,000th home earlier this month. Days later, it moved front and center at the Utah Legislature, when Utah Department of Transportation's director of project development, Jim McMinimee, told lawmakers that cost increases and product shortages have forced UDOT to prioritize some projects and delay others. Similar conversations are taking place at builders' meetings, job sites and board rooms across the state and the country.
The explanation of why the price of asphalt has spiked this year reads a bit like a paving "perfect storm," according to one of the state's largest suppliers, Salt Lake-based Sinclair Oil. Locally, the strong economy has spurred growth, which affects development and demand, while at the same time supply has
decreased because refineries — Sinclair among them — are upgrading their facilities to comply with new U.S. Environmental Protection Agency regulations regarding the sulphur content of petroleum products. The average cost to make the required refinery upgrades is between $200 million and $400 million, according to Craig Menees, general manager of refinery sales for Sinclair.
Also this year, weather affected asphalt production at a key plant in Wyoming, at about the same time another major regional asphalt supplier significantly slowed production while it conducted maintenance on its plant.
"All of that translated into a situation in which overall inventories coming into the season were very low relative to years past," Menees said. "You have to have enough in the tank, so to speak, to allow you to meet peak demand. You can't produce enough on a daily basis to do that.
"These things have all come together to create an unusual year where we've gone into the year shorter of product than we probably ever have historically," Menees said.
Shortages, when they happen, usually happen in the fall when most projects are wrapping up, Menees said. Rarely does it happen at the start of the season.
"I've never seen it in all the years I've been in the business, which is 27 years," he said. "Until now."
But it's not just Utah. Shortages have been reported from Hawaii to Florida as refineries worked to meet EPA regulations by the June 1, 2006, effective date. Others, like a Chevron facility in Hawaii, have stopped producing liquid asphalt (a heavy oil) in favor of lighter fuels, according to Richard J. Thorn, president and chief executive officer of the Associated General Contractors' Utah chapter. Still others were struggling to ramp up production following last year's devastating hurricanes.
"In response to these shortages, some suppliers of liquid asphalt have begun to allocate and ration supply deliveries of their products," Thorn said. "Owners, contractors, specialty contractors and their suppliers are now faced with the fact that some of their projects simply cannot be paved this year and potentially next. Members of the construction team are now looking to farther geographic regions of the country to try and identity future supplies of asphalt products."
As a consequence of the shortage, Irwin said, builders may be forced to reconsider their land planning strategies or the layout of planned communities — moving homes closer to the curb, for example, to shorten the length of driveways.
"If you set houses back off the curb, it looks prettier, but now you have an additional cost to do that, which may cause you to think differently about pushing it back," Irwin said. "Consumers and builders alike are having to rethink things a little bit."
Kent McKenzie, vice president of Morgan Asphalt, said Morgan buys about 95 percent of its "made product" from Sinclair. Supplies have dropped about 30 percent, while prices have jumped about that same percentage, McKenzie said. Morgan specializes in commercial and industrial paving, including excavation, resurfacing, parking lots, roads and paved surfaces for shopping and retail centers.
In the spring, when the season started, Morgan paid about $30 per ton for the asphalt it uses, McKenzie said. Today, prices are averaging $43 per ton. Morgan goes through about 200,000 tons per season.
"It used to be that you could call when you needed it and get what you needed," McKenzie said. "Not anymore."
Already this summer, McKenzie said there have been times when workers have been idled because asphalt wasn't available. Jobs have been pushed back weeks, where the company's usual turnaround time is two or three days.
"It's been a nightmare," McKenzie said.
UDOT has seen a 17 percent increase in the cost of road construction materials, McMinimee told lawmakers 10 days ago. UDOT's cost of asphalt has jumped 20 percent, from about $50 per ton to $70 per ton this year.
"The last two years have not been that kind," McMinimee told the Legislature's transportation appropriation subcommittee. "Ultimately, we can't build as many jobs this year. We'll build them, but we'll just have to defer. We will have to wait."
UDOT spokesman Nile Easton said the department is shifting asphalt away from smaller projects such as residential streets and potholes to larger projects like the $260 million I-15 project in Weber County and resurfacing in Parleys Canyon. Work on the latter was postponed last week due to asphalt shortages, this time due to a fire at a supplier's facility, Easton said.
For UDOT, asphalt is one of many money concerns. Overall construction costs are up more than 40 percent over the last three years, Easton said, meaning that projects starting in 2007 might have to be rescheduled.
"That's the bigger problem," Easton said. "Asphalt is just one part of it."
The situation does seem to be improving as companies struggle to make do, according to McKenzie.
"Now, because of the shortage, people are starting to plan better, to space jobs out so they have availability when they need it," he said.
However, McKenzie said likely there will be no "quick fix," no easy solution to a shortage that has roots in so many places.
"There will be longer-term effects," he said. "It will probably continue into 2007. I can't even get a quote for material for next year right now, because people don't know what the price is going to be."
Thorn agreed.
"I've been told that in some cases, projects simply will not get paved," he said. "That could be significant. Owners and contractors are working together to try and minimize these impacts, but there is really no simple solution."
In addition to refining project planning and postponing projects, Thorn said, the AGC is looking at other longer-term alternatives, including recycling existing asphalt and pavement.
"This has some real potential," Thorn said, "and our industry is always trying to work in harmony with our environment."
E-mail: jnii@desnews.com