Road Projects a Casualty of Oil Crisis

ByDURRELL DAWSON

Aug. 2, 2006 — -- What do the gas flowing through your car and the black asphalt under your tires have in common? Both are derived from crude oil, and as the price per barrel reaches record levels around the world, the cost of asphalt has sizzled and thrown budgets for road construction out of whack.

Because petroleum is one of the main ingredients used to make liquid asphalt, asphalt prices have skyrocketed, along with global oil costs. So if record gas and oil prices continue to climb, motorists may feel the effects -- literally -- as they drive over the nation's aging, cracking, potholed roads.

According to the American Road and Transportation Builders Association, the average cost of asphalt has increased by roughly 30 percent since last summer. That increase has followed the inflation of oil prices in the past year, which have soared even higher in recent weeks over concerns about a supply disruption from the Middle East amid the continued fighting between Israel and Hezbollah. The cost of a barrel of oil climbed above $75 this week, near the record-high levels set early last month.

In California, asphalt cost $359 per ton last month, according to the California Department of Transportation Paving Asphalt Price Index. That's up from $272 per ton a year ago. This sharp rise in asphalt costs could lead to a longer wait for road and highway projects as cities and states try to scrape together additional funding to handle unexpected costs for existing construction projects.

The problem is not just limited to California. States across the country face similar situations.

"We're very concerned about this, and we are closely monitoring it," said Patrick Cooney, communications director for the Oregon Department of Transportation.

Cooney said the state has not had to scale back on any road construction projects yet and tries to include clauses in its contracts that prevent it from being hit with escalating material fees.

According to the ABC affiliate WHOI in Peoria, Ill., an escalation clause has helped the McLean County Highway Department in central Illinois get out of paying for a 54 percent increase in the cost of asphalt since May.

Rowe Construction, the company contracted by the department to add four miles of asphalt to an old highway in McLean wasn't so lucky. According to WHOI-TV, the contractor now has to cover all the additional costs.

In June the northwest Idaho town of Hayden faced a deficit of nearly $900,000 after the budget for its planned road improvement project swelled, said Lisa Key, the city's director of community development.

Rising fuel and labor costs in the past year contributed to the budget deficit, but Key said, "It was primarily the material costs that really drove the cost through the roof."

Like most city and state governments, Key said Hayden usually plans for fluctuating prices of construction materials. Hayden already had a backup plan in place to scale back the project when the costs soared this year. The city planned to cut back on part of its project to rein in the budget, but the sharp price increase this year put the plan in jeopardy.

The price of asphalt jumped nearly 80 percent from when the city originally planned the budget, and concrete prices increased by more than 20 percent, which made the price for its planned road improvement project, she said.

"When you get a spike in one year, does it wreak havoc on your capital improvement?" she said. "It certainly does."

But at the end of July, the city received half a million dollars from the state to address the shortfall and resume the project, which officially begins construction in 2007.

One town that hasn't gotten state funding to meet unexpected budget shortfalls is the town of Libertyville, Ill., north of Chicago.

The town of 20,000 received bids from three local construction companies to patch one of its streets, reconstruct public alleys and extend a sidewalk but eventually decided to put the project on hold because of the sudden increase in prices.

"The bids were substantially over our budget for the work, and we were forced with either cutting back the budget or rejecting all the bids," said Steve Magnusen, the director of public works.

He said asphalt prices went from about $44 per ton in March to almost $63 per ton in July. The city plans to accept bids for the projects again next spring.

While prices for asphalt are the highest they've ever been, the price of crude oil is only one underlying factor, said Dan Massey, president of Argus Media, an energy price reporting firm.

He said Venezuela, a major supplier of liquid asphalt to the United States, experienced a shortfall this year and supply is low, contributing to the rise in prices. Still, he recognizes the effect rising costs could eventually have on American roads.

So will the sudden rise in costs deter future projects, or is the increase only temporary? Moving forward, any sustained price increase could threaten future road projects, particularly for smaller towns with small budgets.

"As the price of asphalt goes up, municipalities can't build as many road projects," Massey said. "If they can't afford it, then they're not going to lay the roads or fix the potholes."

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