Transcript Nasreen Tasker – Energy Costs and Asphalt

Energy Costs and Asphalt
By
Nasreen Tasker
Editor, Argus Asphalt Report
Outline
Factors that impact supply/demand
fundamentals for asphalt
Asphalt pricing methods
Crude and asphalt graphs
– Economics and sustainability
Changes occurring in the market
– Impact on the future
A unique product
Supply/demand fundamentals affected by
several variables
Variables in turn affect asphalt prices
Factors impacting demand for
asphalt
Government road spending
Economy
– Private demand growth
– Housing development
Natural disasters
Factors impacting supply of
asphalt
Refinery economics for asphalt
Alternative economics
– HSFO and coker economics
Crude oil prices and light-heavy crude price
spreads
Transportation options and availability
Adoption of new grades
– Multiple grades in one market
Asphalt pricing methods
Wholesale Prices
– Spot deals
– Term deals
– Winter-fill deals
Asphalt Pricing Methods
Retail Pricing
– Price date-of-shipment
– Fixed monthly prices
– Fixed prices for a period of time
– Indexed pricing
– Not-to-exceed pricing
Asphalt prices can be disconnected
from the international crude market
Treated as a byproduct by integrated
refiners
– Have to move out inventory
Retail pricing can be slow to respond
Weak demand
Changing business environment
Integrated refiners
– Have to justify asphalt as a business unit
Alternative is upgrading
Specialized asphalt refiners
– Not able to breakeven
Difficulty in pricing asphalt
Factors affecting supply/demand are
unpredictable
No futures market
Difficult to hedge
Historical resistance to changing pricing
techniques
– Change has begun
All asphalt prices are from the
Argus Asphalt Report
WTI
100
USD/bl
80
60
40
20
0
Feb-00
Aug-01
Mar-03
Sep-04
Apr-06
Nov-07
Alberta Par vs Lloyd Blend
100
USD/bl
80
Alberta Par
Lloyd Blend
60
40
20
0
Feb-00
Aug-01
Mar-03
Sep-04
Apr-06
Nov-07
Light Canadian crude vs. Midwest barge
550
USD/st
450
Alberta Par
Midw barge
350
250
150
50
Feb-00
Aug-01
Mar-03
Sep-04
Apr-06
Nov-07
Heavy Canadian crude vs. Midwest barge
350
300
Lloyd Blend
Midw barge
USD/st
250
200
150
100
50
Feb-00
Aug-01
Mar-03
Sep-04
Apr-06
Nov-07
Midwest barge vs Midwest rack
400
350
Midwest barge
Chicago Rack
USD/st
300
250
200
150
100
50
0
Aug-98
Jun-00
Apr-02
Feb-04
Jan-06
Nov-07
East vs. West US Gulf coast
400
350
USD/st
300
W. USGC barge
E. USGC barge
250
200
150
100
50
0
Jul-98
May-00
Mar-02
Feb-04
Dec-05
Nov-07
Differential between East and West GC
30
25
20
USD/st
15
10
5
0
-5
-10
-15
Jul-98
May-00
Mar-02
Feb-04
Dec-05
Nov-07
Maya economics in the Gulf coast
400
350
Maya breakeven
East USGC barge
USD/st
300
250
200
150
100
50
Dec-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Gulf Coast barge vs. HSFO prices
500
USD/st
400
E. USGC barge
Gulf coast HSFO prices
300
200
100
0
Jul-98
May-00
Mar-02
Feb-04
Dec-05
Nov-07
East Gulf barge vs. HSFO Alternative value
400
350
E. USGC barge
HSFO Alternative Gulf coast
USD/st
300
250
200
150
100
50
0
Jul-98
May-00
Mar-02
Feb-04
Dec-05
Nov-07
Gulf Coast coker value vs wholesale bitumen
500
Gulf coast wholesale bitumen
Coker value
USD/st
400
300
200
100
0
Sep-01
Nov-02
Jan-04
Mar-05
May-06
Aug-07
Asphalt Alberta
600
500
USD/st
400
300
200
100
0
Jun-98
Apr-00
Mar-02
Jan-04
Dec-05
Nov-07
Eastern Canada retail prices
450
400
Quebec
Ontario
Aug-01
Mar-03
USD/st
350
300
250
200
150
100
50
Feb-00
Sep-04
Apr-06
Nov-07
Things to watch in the future
Reduction in asphalt
production
– Coker installations
Things to watch in the future (2)
Asphalt grades
– Growing number of grades in an individual
market
– More complex grades being adopted
Asphalt demand will vary
– Global demand falls
Asian demand relatively strong
US demand weak
– Higher asphalt prices
– Set country budgets
Net impact on asphalt market
Regional imbalances in asphalt
supply/demand fundamentals
– New patterns of trade
Asphalt viewed as a specialty product,
rather than as a commodity
Reflected in asphalt prices
– More price sensitivity to refinery shutdowns
– Volatility replaces historical price consistency
Feast or famine
Asphalt Pricing Methods
Retail pricing
In the past
– Price date-of-shipment
– Fixed monthly prices
– Fixed prices for a
period of time
– Indexed pricing
– Not-to-exceed pricing
Future
– Price date-of-shipment
– Fixed monthly prices
– Fixed prices for a
period of time
– Indexed pricing
– Not-to-exceed pricing
Asphalt pricing methods
Wholesale Prices
Current
– Spot deals
– Term deals
– Winter-fill deals
Future
– Spot deals
– Term deals
Longer term deals are
risky
– Winter-fill deals
Fewer sources
Change is here
Rate and timing of change will differ for
various regions
Potential domino effect
No turning back
Market participants need to be prepared
– Develop relationships
– Stay informed
The End