Bitumen price prize for UK highwaymen

Author Jack Jordan

Drivers have not been the only European oil consumers enjoying this year’s slump in prices — those building the roads are also reaping the benefits of a drop in raw material costs.

Drivers have not been the only European oil consumers enjoying this year’s slump in prices — those building the roads are also reaping the benefits of a drop in raw material costs.

UK bitumen demand was 1.25mn t last year, and traders expect that figure to grow by as much as 10pc this year. In December, UK transport minister Patrick McLoughlin announced £15bn ($23bn) of extra spending on road construction in the country between 2015 and 2020, and finance minister George Osborne set out plans in this year’s budget to ring-fence funds for road investment from vehicle excise duty from 2020-21.

But Highways England, the organisation responsible for spending much of this money managing England’s biggest roads, is prevented by UK government rules from hedging against moves in the oil price, leaving it exposed to the kind of volatility seen in the past year. Highways England last commissioned research on future bitumen prices about 18 months ago, at which point its consultants were forecasting stable or rising oil prices.

Brent crude futures have dropped by about 55pc since then, and delivered bitumen prices in the south of England are about 44pc lower. About half of the cost savings will come back to Highways England, with the other half going to suppliers. The organisation tends to look at its costs over a period of about five years, and with several banks currently cutting Brent price forecasts, bitumen pricing has been crossed off the list of its immediate concerns. A bigger problem is staffing and other operational costs, with the rapid growth in UK infrastructure projects likely to put strains on the available workforce.

Switzerland-based oil trading firm Trafigura is set to take advantage of growing UK demand with its new east London-based bitumen import terminal, co-owned with and operated by storage, shipping and distribution company Stolt-Nielsen, receiving its first cargo last month. The facility can hold 20,000t, and will help offset cuts in domestic production including from the closure of the ex-Petroplus refinery in Coryton, which had been a major source of supplies in southeast England.

For more information, please contact OilBlog@argusmedia.com

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