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SPEAKOUT: What's driving the asphalt shortage

Todd Mellema

Published July 21, 2008 at 6:45 p.m.

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A Rocky Mountain News story by Julie Poppen (“Drivers face bumpy ride — Blame it on asphalt,” July 15) about asphalt shortages left out a very important fact. The statement, “Refineries aren’t generating as much of the liquid used for asphalt mix because they are focusing on more profitable products, such as diesel fuel,” is not entirely true.

Yes, refineries are making more profitable products, but asphalt is in short supply not because the refiners are greedy, but because Congress during the Clinton administration passed legislation mandating Ultra Low Sulfur Fuels (ULSF) for gasoline and diesel.

The process used to manufacture ULSF is commonly known as a coker. The coker has been around a long time but was not in widespread use until the feds mandated ULSF. This mandate forced every U.S. and most foreign fuel producers (who wish to sell in the U.S.) to update their facilities to meet the mandate. When the rule went into effect in 2007, only a handful of U.S. refineries could meet the criteria; therefore, they had to import the fuels from abroad (mostly from Europe, which already had a ULSF mandate) to meet demand.

Now here’s the asphalt kicker: Asphalt is manufactured in a solvent-extraction process known as a de-asphalting unit (DA). A DA unit is fed with a heavy byproduct, called vac-

bottoms, from an upstream unit called the vacuum still. A coker requires vac-bottoms as a raw material, therefore the DA unit must compete with the coker for the raw material. With summer demand for fuels, asphalt production suffers because a coker does not produce asphalt.

The coker is a very efficient process, and even though it does not produce asphalt, it will produce more high-value products per barrel of crude than a DA unit. Therefore, from a refiner’s perspective, why make asphalt? If the asphalt industry wants to buy asphalt, it will have to be willing to pay the raw-material price.

Case in point is Cenex Harvest States refinery in Laurel, Mont. When its coker came online in 2006, it quit making a specialty grade asphalt altogether because its coker made up for lost revenue.

So, you think, just make more vac-bottoms. Can’t. The Environmental Protection Agency prohibits an increase of production capacity without due process (the EPA’s way of saying “tie you up in court until you give up”).

Another case in point is Suncor in Commerce City. When Suncor’s coker came online last spring, it not only cost $600 million to construct, it took 90,000 barrels per day of vac-bottoms out of asphalt production. (Wow, $600 million. And you wonder why fuel is now more expensive. You really think they’re just going to eat this expense mandated by Congress?).

This is only the beginning. Frontier refining in Cheyenne is constructing a coker that will come online later this year. More are planned.

Polymer also is a big issue. World demand is increasing exponentially, and with the EPA making it so difficult to operate here in the U.S., these companies are going to stay overseas.

My business manufactures and sells asphalt pavement maintenance materials and equipment. Due to this asphalt shortage, we are on allocation for asphalt. I have orders pending to supply product to Colorado Department of Transportation and cannot fulfill them. In addition, several municipalities and counties have had to scale back their road-maintenance programs dramatically. We still are selling the same dollar volume, but we’re just delivering half the product, which results in only half the road-maintenance projects getting done.

As for private paving contractors, they’re really crying the blues. I’ve had some here lately just shut down because they couldn’t sell services at the high price necessary to complete the work. Currently, most of our business is municipal or state, and they have only limited revenue to get the work done.

This is only the beginning. You always have to remember that this issue is part of the “energy issue” everyone is talking about. It’s not just about gasoline! Only 21 percent of a barrel of crude is gas. The other 79 percent is everything you take for granted, from car tires to sunglass lenses.

Yes, gasoline and diesel have increased 40 percent in the past 18 months, but industrial products such as asphalt and such have increased 300 percent in the past 18 months.

Todd Mellema is president DISSCO Denver Industrial Sales & Service Co.

Comments

  • July 21, 2008

    7:17 p.m.

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    dragonfly writes:

    Well done, Todd. Very informative article. But, if the greenies get their way, i.e. no drilling, you will be driven out of business and streets of Denver will become gravel again.

  • July 21, 2008

    7:57 p.m.

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    Brian1973 writes:

    Just goes to show what happens when you blindly impliment policies without thinking of the long term consequences

  • July 21, 2008

    11:45 p.m.

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    peterpi writes:

    Tbone, no matter what the real reason, the letter writer and conservatives will always figure out a way to blame it on Clinton. Everything bad today is because of Clinton. High oil ptrices? Blame it on Clinton. Terrorists using IEDs in Iraq? Blame it on Clinton. Airlines going bankrupt? Blame it on Clinton. Bush gets credit for any accomplishment. Clinton gets blame for anything gone wrong.
    The low-sulfur manadate was passed during the 1990s. According to Mr. Mellema, it went into effect in 2007. So the industry had roughly a decade or longer to satisfy the low sulfur requirements. Yet, according to Mr. Mellema, the supply of low sulfur raw materials had to come from Europe, because American refineries didn't meet the rules in time. Ten years, and no change-over? It's a bummer when the oil companies' pal Cheney doesn't get those pesky rules reversed and they go into effect.
    After Mr. Mellema's confusing explanation, I still fail to see how low sulfur production makes less asphalt. Asphalt is made from the crude oil dregs after every other useful distillate is removed from it. Asphalt is made from sludge. Low sulfur crude is still going to produce sludge, so there ought to be asphalt available.

  • July 22, 2008

    2:58 a.m.

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    trasmus writes:

    Does the word conspiricy come to mind? lol

  • July 22, 2008

    6:46 a.m.

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    roger44 writes:

    peterpi, read the article, Congress passed the legislation. And you have access to the Internet, look up all you don't understand. Many times congress passes legislation that will take effect in the future. Our congress is one of our worst enemies, they mandate without funding, they sit on their duffs when it comes to issues like social security, minimum wage, and the economy. The only way we will get results is to get on their case to get off their butts and do what they were elected to do.

  • July 22, 2008

    7:04 a.m.

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    rellimpank writes:

    --good article, well put as to a cause and effect of excess legislation poorly (or not at all) thought out.

    --and I'll check back in a few hours to see of the crazies responding to Vince Carrolls' piece on Algore have shown up on this thread---

  • July 22, 2008

    7:07 a.m.

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    glowrock writes:

    For the record, the reason that Suncor in Commerce City upgraded so heavily is because it was preparing to be able to process the very sour crude coming out of its Alberta oil sands region. Sour crude is, for those who don't know, oil with a very high sulfur content, which would utterly destroy refineries that can't get rid of the additional sulfur content. The corrosion would be extremely hazardous.

    So, I take it that the letter writer would rather have more sulfur in the air as a pollutant than have the refineries install cokers to get rid of that problem? Interesting!

  • July 22, 2008

    8:53 a.m.

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    gs writes:

    Well written and understandable. thanks. Another example of the law of unintended consequences. Or, as I was taught, not thinking the issue through. Seems like theres a lot of that going around.

  • July 22, 2008

    9:12 a.m.

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    Marshdale writes:

    Those of you who want to blame Clinton seem to fail to remember that congress was controled by republicans at the time it was passed. I'm no Clinton fan but lets keep things in perspective here.

  • July 22, 2008

    9:57 a.m.

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    toddmellema writes:

    Todd Mellem's response;

    I appreciate your comments, pro or con.

    As for a more personal response.

    Tbone; The legislation was to be implemented through a phased in approach with the largest refiners to be in compliance in 2007. Smaller refiners need to be in compliance in the years to come. As for dragging their feet. Yes, I assume some did, but the legislation required new permits for the up-grade to go through due process which can take years therefore delaying start of construction.

    Peterpi; For the decade to implement, read above. As for the sludge, a Coker does not produce a residual sludge, it produces a brittle, coal like substance commonly called Coke, hence the name “Coker”.

    Glowrock; I’m all for cleaner air. My gripe about the Coker is that it now gives asphalt gasoline value as feed stock to the Coker therefore limiting supply and pushing asphalt pricing into the light-end category.

    Todd

  • July 22, 2008

    11:35 a.m.

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    The_Punnisher writes:

    The REALITY:

    Home Heating Oil = More $$$ ( everyone will find that out soon enough ). The bias is to refine MORE...

    Asphalt ( and denser materials ) = Less $$$. Thus more COKE creation..

    HYPERCAPITALISM shows it's ugly head ( again )....

  • July 22, 2008

    12:42 p.m.

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    Andy writes:

    Thanks for the explanation. I was not aware of the issue. I'm still in favor of the ULSF mandate, but it's good to be aware of its downside.

  • July 22, 2008

    9:26 p.m.

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    jaymoveonorg writes:

    There is always consequences when the government steps in mandates a new law.

    DDT was outlawed, because it was affecting the birthrate of some animals. Since then millions have died of malaria.

    We decreased regulations on Home mortgages, which allowed millions to buy homes but now we are going to be bailing out banks who have lost money.

    The government won't let forest thinning and this has caused forests to become tinderboxes in the west. Colorado is ready to blow up with this pine beetle mess.

    The mandate to use florecent bulbs is going to create a major mecury issue for our water in the future.

    I can go on and on. All government mandates are meant for good but we also need to be aware of the bad that comes with it and be prepared for it. That is the problem I have with the government. They pass these mandates and laws but then do not prepare for the bad that comes with it.

  • July 23, 2008

    7:46 a.m.

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    athought writes:

    Todd: Frontier Refining has had a coker for a number of years. The issue is that they can't operate the unit safely. It's had 2 catastrophic failures this decade already.

    I vehemently disagree with your assertion that refineries cannot increase capacity. 15 miles away from CHS, ConocoPhillips upgraded their refinery capacity from 60,000 bbl/d to 100,000 bbl/d this year and ExxonMobil Billings is also increasing capacity next year. A large number of gulf coast refineries have increased capacity as well. Your rather snippy (it came off snippy to me) comment about the EPA process only applies to the air and water permitting associated with the refinery, not the bbl/d capacity of a facility. I agree that state EPA's can make life miserable for refiners but the due process to amend an existing permit is much less ardous than getting a new one.

  • July 23, 2008

    2:22 p.m.

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    toddmellema writes:

    athought; Thank you for the input. I can only be accurate when people in the know provide me accurate information. I report what I hear from people I know in the industry and based on my own experiance.

    Sometimes regulators make my life hell, unlike big companies who can just hire someone to deal with the regulators I have to deal with them (and pay for it) myself. So I tend to get a little short in reguards to regulation.
    Todd

  • July 31, 2008

    9:54 a.m.

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    Curtzilla34 writes:

    Todays headline:

    HOUSTON - Lifted by record crude prices, Exxon Mobil says its second-quarter earnings rose nearly 14 percent to $11.68 billion, the biggest quarterly profit ever by any U.S. corporation.

    Imagine that? Things will change soon when the sinking republican ship changes guard.