energy costs and asphalt by nasreen tasker editor, argus asphalt report
TRANSCRIPT
Energy Costs and AsphaltEnergy Costs and Asphalt
By By
Nasreen TaskerNasreen Tasker
Editor, Argus Asphalt ReportEditor, Argus Asphalt Report
OutlineOutline
Factors that impact supply/demand Factors that impact supply/demand fundamentals for asphaltfundamentals for asphalt
Asphalt pricing methodsAsphalt pricing methods
Crude and asphalt graphsCrude and asphalt graphs– Economics and sustainabilityEconomics and sustainability
Changes occurring in the marketChanges occurring in the market– Impact on the futureImpact on the future
A unique productA unique product
Supply/demand fundamentals affected by Supply/demand fundamentals affected by several variablesseveral variables
Variables in turn affect asphalt pricesVariables in turn affect asphalt prices
Factors impacting demand for Factors impacting demand for asphaltasphalt
Government road spendingGovernment road spending
EconomyEconomy– Private demand growthPrivate demand growth– Housing developmentHousing development
Natural disastersNatural disasters
Factors impacting supply of Factors impacting supply of asphaltasphalt
Refinery economics for asphaltRefinery economics for asphaltAlternative economicsAlternative economics– HSFO and coker economicsHSFO and coker economics
Crude oil prices and light-heavy crude price Crude oil prices and light-heavy crude price spreadsspreadsTransportation options and availabilityTransportation options and availabilityAdoption of new gradesAdoption of new grades– Multiple grades in one marketMultiple grades in one market
Asphalt pricing methodsAsphalt pricing methods
Wholesale PricesWholesale Prices– Spot dealsSpot deals– Term dealsTerm deals– Winter-fill dealsWinter-fill deals
Asphalt Pricing MethodsAsphalt Pricing Methods
Retail PricingRetail Pricing– Price date-of-shipmentPrice date-of-shipment– Fixed monthly pricesFixed monthly prices– Fixed prices for a period of timeFixed prices for a period of time– Indexed pricingIndexed pricing– Not-to-exceed pricingNot-to-exceed pricing
Asphalt prices can be disconnected Asphalt prices can be disconnected from the international crude marketfrom the international crude market
Treated as a byproduct by integrated Treated as a byproduct by integrated refinersrefiners– Have to move out inventoryHave to move out inventory
Retail pricing can be slow to respondRetail pricing can be slow to respond
Weak demand Weak demand
Changing business environment Changing business environment
Integrated refiners Integrated refiners – Have to justify asphalt as a business unit Have to justify asphalt as a business unit
Alternative is upgradingAlternative is upgrading
Specialized asphalt refinersSpecialized asphalt refiners– Not able to breakevenNot able to breakeven
Difficulty in pricing asphaltDifficulty in pricing asphalt
Factors affecting supply/demand are Factors affecting supply/demand are unpredictableunpredictable
No futures marketNo futures market
Difficult to hedgeDifficult to hedge
Historical resistance to changing pricing Historical resistance to changing pricing techniquestechniques– Change has begunChange has begun
All asphalt prices are from the All asphalt prices are from the Argus Asphalt ReportArgus Asphalt Report
WTI
0
20
40
60
80
100
Feb-00 Aug-01 Mar-03 Sep-04 Apr-06 Nov-07
US
D/b
l
Alberta Par vs Lloyd Blend
0
20
40
60
80
100
Feb-00 Aug-01 Mar-03 Sep-04 Apr-06 Nov-07
US
D/b
l
Alberta Par
Lloyd Blend
Light Canadian crude vs. Midwest barge
50
150
250
350
450
550
Feb-00 Aug-01 Mar-03 Sep-04 Apr-06 Nov-07
US
D/s
t
Alberta Par
Midw barge
Heavy Canadian crude vs. Midwest barge
50
100
150
200
250
300
350
Feb-00 Aug-01 Mar-03 Sep-04 Apr-06 Nov-07
US
D/s
t
Lloyd Blend
Midw barge
Midwest barge vs Midwest rack
0
50
100
150
200
250
300
350
400
Aug-98 Jun-00 Apr-02 Feb-04 Jan-06 Nov-07
US
D/s
t
Midwest barge Chicago Rack
East vs. West US Gulf coast
0
50
100
150
200
250
300
350
400
Jul-98 May-00 Mar-02 Feb-04 Dec-05 Nov-07
US
D/s
t
W. USGC barge E. USGC barge
Differential between East and West GC
-15
-10
-5
0
5
10
15
20
25
30
Jul-98 May-00 Mar-02 Feb-04 Dec-05 Nov-07
US
D/s
t
Maya economics in the Gulf coast
50
100
150
200
250
300
350
400
Dec-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07
US
D/s
t
Maya breakeven East USGC barge
Gulf Coast barge vs. HSFO prices
0
100
200
300
400
500
Jul-98 May-00 Mar-02 Feb-04 Dec-05 Nov-07
US
D/s
t
E. USGC barge Gulf coast HSFO prices
East Gulf barge vs. HSFO Alternative value
0
50
100
150
200
250
300
350
400
Jul-98 May-00 Mar-02 Feb-04 Dec-05 Nov-07
US
D/s
t
E. USGC barge HSFO Alternative Gulf coast
Gulf Coast coker value vs wholesale bitumen
0
100
200
300
400
500
Sep-01 Nov-02 Jan-04 Mar-05 May-06 Aug-07
US
D/s
t
Gulf coast wholesale bitumen Coker value
Asphalt Alberta
0
100
200
300
400
500
600
Jun-98 Apr-00 Mar-02 Jan-04 Dec-05 Nov-07
US
D/s
t
Eastern Canada retail prices
50
100
150
200
250
300
350
400
450
Feb-00 Aug-01 Mar-03 Sep-04 Apr-06 Nov-07
US
D/s
t
Quebec Ontario
Things to watch in the futureThings to watch in the future
Reduction in asphalt Reduction in asphalt productionproduction– Coker installationsCoker installations
Things to watch in the future (2)Things to watch in the future (2)
Asphalt gradesAsphalt grades– Growing number of grades in an individual Growing number of grades in an individual
marketmarket– More complex grades being adoptedMore complex grades being adopted
Asphalt demand will vary Asphalt demand will vary – Global demand fallsGlobal demand falls
Asian demand relatively strongAsian demand relatively strongUS demand weak US demand weak
– Higher asphalt pricesHigher asphalt prices– Set country budgetsSet country budgets
Net impact on asphalt marketNet impact on asphalt market
Regional imbalances in asphalt Regional imbalances in asphalt supply/demand fundamentalssupply/demand fundamentals– New patterns of tradeNew patterns of trade
Asphalt viewed as a specialty product, Asphalt viewed as a specialty product, rather than as a commodityrather than as a commodityReflected in asphalt pricesReflected in asphalt prices– More price sensitivity to refinery shutdownsMore price sensitivity to refinery shutdowns– Volatility replaces historical price consistencyVolatility replaces historical price consistency
Feast or famineFeast or famine
Asphalt Pricing MethodsAsphalt Pricing MethodsRetail pricingRetail pricing
In the pastIn the past– Price date-of-shipmentPrice date-of-shipment– Fixed monthly prices Fixed monthly prices – Fixed prices for a Fixed prices for a
period of timeperiod of time– Indexed pricingIndexed pricing– Not-to-exceed pricingNot-to-exceed pricing
FutureFuture– Price date-of-shipment Price date-of-shipment – Fixed monthly pricesFixed monthly prices– Fixed prices for a Fixed prices for a
period of timeperiod of time– Indexed pricingIndexed pricing– Not-to-exceed pricingNot-to-exceed pricing
Asphalt pricing methodsAsphalt pricing methodsWholesale PricesWholesale Prices
CurrentCurrent– Spot dealsSpot deals– Term deals Term deals – Winter-fill dealsWinter-fill deals
FutureFuture– Spot dealsSpot deals– Term deals Term deals
Longer term deals are Longer term deals are risky risky
– Winter-fill dealsWinter-fill deals Fewer sources Fewer sources
Change is hereChange is here
Rate and timing of change will differ for Rate and timing of change will differ for various regionsvarious regions
Potential domino effect Potential domino effect
No turning backNo turning back
Market participants need to be preparedMarket participants need to be prepared– Develop relationshipsDevelop relationships– Stay informedStay informed
The EndThe End