Wednesday, January 7

The Asphalt Factor

Everyone has been talking about the Obama infrastructure stimulus package in the making. The current plan is to pass money as quickly as possible through existing funding mechanisms into state transportation coffers, where many of the "shovel ready" projects happen to involve road-building. What has received less attention is the fact that road construction invariably requires asphalt, and hundreds of billions of dollars in pave-as-fast-as-you-possibly-can road construction requires a lot of asphalt in a short amount of time.

As it turns out, asphalt doesn't grow on trees. It's a byproduct of crude oil production, typically the heavier substance less easily refined into gasoline. NPR's Marketplace reports that there are already signs of asphalt shortages nationwide. When crude was so expensive over the summer, refineries invested in technology to derive gasoline-grade oil from what used to be only good for asphalt. According to Mike Pesce, owner of an asphalt refinery in New Jersey,

"The U.S. overall has a net shortage of around 20,000 barrels a day of asphalt. If these projects come in as we're seeing them come in, you're looking at a potential of extra demand in the United States of around 250,000 barrels a day."

Those are staggering numbers that I hope somebody important is paying attention to.

Three gut reactions:

1. If the ultimate point is to put people to work, one would think the goal would be to minimize material costs in order to maximize labor salaries. Skyrocketing asphalt prices would only serve to siphon a disproportionate amount of the money away from the U.S. economy altogether.

2. Maybe we could learn a lesson from the whole ethanol/corn debacle. Some commodities are so interconnected that their prices move almost in tandem. Could it be possible that just as the road-building binge reaches full steam this summer, Americans may not be able to afford the gasoline they need to use these nice new roads.

3. A diversified infrastructure stimulus plan would draw from a variety of materials, thus avoiding a shortage within any one industry. A more equitable balance between the steel needed by transit and the asphalt needed by roads makes more sense fiscally.


LH said...

Nice! My boss and I were just talking about this very issue this afternoon. He notes that many big infrastructure projects tend to be heavy on materials and heavy on machinery, and actually pretty light on labor. So much for infrastructure investment as a job creation mechanism.

Seth said...

Retwittering from a few weeks ago:

sidewalk construction... the best "shovel-ready" economic stimulus