America's Biggest Asphalt Plant Is Shutting When the Country Might Need It Most
Axeon Specialty Products is shuttering the largest asphalt refinery in the United States when the country might need it most.
The Stamford, Connecticut-based company announced In January that it plans to close its Paulsboro, New Jersey, refinery and convert it into a terminal. The planned shutdown would occur as President Trump has pledged to build new roads, highways and bridges across the country. The United States would need 63% more asphalt than its consumes now, just to pave roads at the rate it reached a decade ago, Energy Information Administration data show.
Any new road building runs up against the question of funding, and a simple pledge isn’t enough to keep Axeon’s plant running, Gurpal Dosanjh, Bloomberg Intelligence analyst, said in a phone call from New York.
“It’s very difficult for any company to base its future on a one-sentence policy,” he said. “I don’t think it's too surprising it closed.”
U.S. consumption of the road sealant, measured in product supplied, fell to 335,000 barrels a day in 2016 from 343,000 in 2015, EIA data show. Demand has fallen since reaching 546,000 in 2005, the second-biggest year on record after 1999. U.S. refiners also have been producing less, with domestic output dropping a yearly 2.1% to 333,000 in the first 11 months of 2016.
Asphalt is a mix of crushed rocks and viscous oil, typically produced from heavy crude at refineries. As much as 30% of asphalt produced is recycled.
Axeon’s New Jersey refinery can produce 49,000 barrels a day of the road sealant, more than any other plant in the United States, including Flint Hills Resources' Minnesota plant, Energy Department data show. Dave Kirshner, Axeon’s CEO, declined to comment on the plant when contacted by phone.
Although Trump pledged to invest as much as a $1 trillion in infrastructure during his campaign, refiners have reason to be skeptical that an infrastructure expenditure will lead to a rise in demand, Dosanjh said.
Asphalt use has failed to pick up since Congress passed, and then-President Obama signed, the Fixing America’s Surface Transportation Act, called FAST Act, in 2015. The bill provided $305 billion between 2016 and 2020 to fix the country’s road and transport network. Prices for the material also have lagged.
Unlike crude oil, which fell to a 12-year low of about $26 a barrel in February 2016, only to rebound above $50, asphalt in New York has fallen to $380 a metric ton in February, the lowest in at least four years and down from $453 a year earlier, according to prices posted by the state’s Department of Transportation.
“A lot of states, and especially those with rural areas, have been challenged, from a budget perspective," to keep up with road paving, Liisa Ecola, senior policy analyst, at the Rand Corp. in Arlington, Virginia, said in a phone interview. In two-thirds of the states, motor fuel tax revenue, the prime funding source for road work, failed to keep pace with inflation for two decades, according to a 2015 analysis by Governing magazine.
The Axeon plant in New Jersey lacks direct access to the heavy Canadian oil sands crude that is commonly used to make asphalt. Crude production from Venezuela, a waterborne heavy oil supplier, is declining, Dosanjh said.
“I don’t think there is enough demand on the East Coast around where Axiom is located,” he said. “Even if there is an increase in demand, they will just have to accept imports rather than produce asphalt.”
Not everybody sees the situation as dire. Alon USA Energy Inc., a $733 million refiner, derived about 7% of its revenue from asphalt in 2016, data compiled by Bloomberg News show. The company’s Big Spring, Texas, refinery produces 2,000 barrels a day of asphalt and uses heavy Canadian oil as its primary source of crude, Scott Rowe, senior vice president of the company’s asphalt business, said in a Dec. 6 e-mail.
Proposed infrastructure spending is rising faster than what the FAST Act funded, with demand for construction materials in Texas rising 30 to 40%, Rowe said.
“We expect our operating income and profits to continue to increase,” he said.
