Flint Hills refinery closure makes for higher-priced asphalt

  • By ELWOOD BREHMER
  • Sunday, September 7, 2014 10:37pm
  • News

As paving season peaks, getting asphalt to construction sites across Alaska has become more complicated and expensive since Flint Hills Resources closed its North Pole oil refinery.

The real price of asphalt oil has spiked about 20 percent over last year — about $150 per ton — for construction projects in Fairbanks and more remote locations, Exclusive Paving General Manager Travis Cline said.

The reason for the cost increase is asphalt oil used for state Transportation Department Northern Region projects must now be trucked up from Tesoro’s Nikiski refinery.

Tracked bi-weekly by DOT, the base, or “rack” price of asphalt oil is actually less than last year. Through Sept. 4 the rack price was $600 per ton and had been steady since June 20, as opposed to $619 per ton for the 2013 paving season.

While work on road projects occurs all summer long, most paving is done in late summer and early fall.

“Those numbers, that they use for that index, that is what they get direct from the manufacturer,” Cline said. “That price doesn’t take into account the trucking. That’s why when it finally gets to our jobs here in Northern Region it’s quite a bit more expensive.”

DOT Northern Region Construction Engineer Frank Ganley said the state was initially hearing that asphalt was running about $100 more per ton than was projected in many of the contracts it has with construction companies, but added that the $150 figure is reasonable as well.

“A lot of that information we just don’t have yet from our contractors,” Ganley said.

Contracts for this summer’s projects were bid and awarded last winter and early spring, prior to when Flint Hills announced it would close its North Pole refinery, which happened June 1.

He estimated Northern Region work would use about 25,000 tons of asphalt oil this year, meaning it could cost the state and its contractors combined up to $3.75 million more than projected.

Asphalt oil typically makes up about 6 percent of the final product that is laid on the road surface. The rest is mostly sand and gravel aggregates.

DOT road construction contracts include a price adjustment clause that requires contractors to share in the added cost, up to 7.5 percent, Ganley said.

“That cause was put in there to deal with the volatility of oil prices seven and eight years ago,” he said.

Cline said Exclusive Paving happened to get two of the largest resurfacing jobs in Fairbanks — Airport Way and the Johansen Expressway — at the wrong time.

“What a year to get have the big paving jobs when the price of (asphalt) oil goes up like that,” he said.

Bids for future work in the region will include the new, added cost of transporting asphalt oil from the Kenai Peninsula, rather than from an Interior source, he said.

Preseason fears about Tesoro being able to meet the asphalt needs of the entire mainland of Alaska have been quelled, according to state officials and paving companies. This spring, a Tesoro spokesman said the company would not have a problem meeting the demand.

Southeast paving projects are supplied with asphalt that is shipped up from Seattle.

While supply from Tesoro has not been an issue, Lane Keator, Carlile Transportation System’s Fairbanks terminal manager, said the logistics of the trucking operation from Nikiski have contributed to the cost.

“The biggest challenge is probably maintaining the heat,” Keator said. “It’s loaded hot in Nikiski and it’s a 12-hour, one-way trip minimum from Nikiski to Fairbanks.”

Highly viscous asphalt oil is heated to 300 degrees Fahrenheit or more keep it liquid.

Keator said Carlile and other companies that haul asphalt oil to the Interior now have to pump it into heated tanks once they get to Fairbanks or North Pole, allow it to reheat and then pump it back into the tanker trucks before it is sent to its final destination, which could be as far away as Deadhorse or Eagle.

Luckily, the State of Alaska allows truckers to drive 15 hours per day, as opposed to the 12-hour limit many other states have, he added. However, drivers hauling asphalt north must “start fresh” in Nikiski, he said.

Tesoro has the ability to load about one truck per hour with asphalt oil, and the added demand has required cooperation between dispatch centers to make sure nobody is stuck in line at the refinery, Keator said.

“The trucking companies have worked well together to make sure we don’t step on each others’ toes — to make sure nobody has to wait” at the asphalt rack, he said.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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