The Alaska Contractor - Summer 2008

are producing little to no asphalt oil,
and have to import it from refineries
where coking towers are not installed.
The whole supply cycle has changed
while demand for asphalt continues to
increase.
Simply put, the raw material can
be refined into more valuable product
than asphalt oil, thus the price of asphalt
has to go up to compete with the
other more expensive products.
The two state refineries that supply
Alaska – Tesoro and Flint Hills – are not
producers. They buy oil from the producers,
refine it and market the refined
products, working on a thin margin between
the price of raw material per barrel
(>$125) and the wholesale (or retail)
price for gasoline, heating oil, etc.
If you look at the profits of the refining
companies such as Tesoro and
Valero, you won’t see stellar results. It
is the producers that have billions of
dollars in quarterly profits because they
own the raw material in the ground.
For asphalt oil, Alaskans are victims
of the marketing and refining
efficiency of the refiners. This affects
some, but not all of the contractors.
Some buy the oil at the time of bid,
locking in their bid price. They can
do this only if they have the capacity
to store quantities of oil. This is
something few can do. Most contractors
are subject to market exigencies
or vagaries. Since asphalt is a long
lead-time item, contractors face the
risk of price variations that make bidding
perilous and only for the most
adventurous.
John MacKinnon is the executive director
of the Associated General Contractors of
Alaska.