Full Depth Reclamation with Cement Opportunity Assessment March 2014 PCA Market Intelligence Ed Sullivan Dave Zwicke Chief Economist & Group Vice President Director, Sr. Regional Economist 847.972.9006 [email protected]847.972.9192 [email protected]
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PCA (2014), Full Depth Reclamation With Cement Opportunity Assessment
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Full Depth Reclamation with Cement Opportunity Assessment
FDR with Cement Opportunity Assessment Key Findings
• FDR in an untapped market. Based on currently activity estimates, roughly 930,000 metric tons of cement was accrued to FDR applications in 2013. PCA estimates that cement tonnage accrued to FDR applications will reach 2.9 million metric tons by 2030.
• Paving activity is likely to accelerate. During the harsh economic downturn overall paving activity was depressed and maintenance spending was concentrated on more highly travelled roads. Maintenance on local roadways, was reduced. Pent-up demand for pavement resurfacing is expected to be released as fiscal strength among states returns.
• Most of this paving activity is expected to come in the form of asphalt repaving. Based on past activity, PCA estimates that roughly 85% of asphalt pavement maintenance consists of overlays and other surface maintenance projects, 10% are full depth reclamation (using any binder, concrete or otherwise), and 5% are complete reconstruction with virgin materials.
• Deteriorating roads are a constant problem for cities and counties and public works officials are increasingly turning to a process called full-depth reclamation (FDR). This process rebuilds worn out asphalt pavements by recycling the existing roadway that is often mixed with a stabilizer and compacted to produce a strong, durable base for either an asphalt or concrete surface.
• Road deterioration among lesser travelled local roads likely resulted during the economic downturn. The road quality declines, in some instances, have occurred to such an extent that it requires rehabilitation. In these cases, full depth reclamation (FDR) remediation could be a practical solution. PCA expects that the FDR share of paving activity will grow from 10% to 15% by 2020.
• FDR is not solely a cement-based solution. Base stabilization practices can consist of mechanical and/or chemical stabilization processes. Based on a PCA survey analysis, cement has nearly a 30% share of the entire FDR market, no stabilizer is used in roughly one quarter of all FDR processes, asphalt emulsion and foamed asphalt have roughly a 20% market share, lime, fly ash and other processes account for the remaining 30% of the FDR market.
• The FDR is an appealing option to decision makers given its cost savings and sustainable
nature. Reclamation of existing roadways is up to 50% cheaper per lane mile than traditional reconstruction through recycling of existing roadway material. An increase in 5% of FDR activity vs. traditional resurfacing would result in an estimated $335 million savings per year.
• FDR can be constructed and put into service quickly. FDR can be done in a fraction of the time of traditional removal and replacement reconstruction methods. In addition, FDR can usually be constructed under traffic, further reducing the inconvenience to motorist.
• FDR provides a unique regional solution to shale oil exploration activity. Untreated gravel
roads are inadequate for the large truck traffic involved in many shale oil plays. Soil stabilization nature of FDR with cement, even on gravel roads can provide a significant regional opportunity.
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FDR with Cement Opportunity Assessment Overview
Deteriorating roads are a constant problem for cities and counties. As a result, engineers and public works officials are increasingly turning to a process called full-depth reclamation (FDR). This process rebuilds worn out asphalt pavements by recycling the existing roadway. The old asphalt and base materials are pulverized, mixed with cement and water, and compacted to produce a strong, durable base for either an asphalt or concrete surface. The full-depth reclamation process uses the old asphalt and base material for the new road; therefore, there’s no need to haul in aggregate or haul out old material for disposal. Truck traffic is reduced, and there is little or no waste.
This report assists the Portland Cement Association (PCA) and industry stakeholders in an evaluation of possible promotion opportunities. Specifically, the analysis calculates the existing and future cement consumption potential of the United States’ full depth reclamation market. This report is divided into three sections. The first section estimates the size of total annual paving activity. The second section estimates FDR cement potential through 2030 while the final section identifies states with the strongest opportunity. Section 1: Introduction To measure the size of the annual FDR market, it is important to consider the size of the overall paving market. Paving activity results from one of two actions: the need to expand roadways or the need to rehabilitate existing roadways. Road systems are classified by surface type. They are also classified as urban or rural. Roads that are also classified their existing condition and need of repair. Based on the international roughness index (IRI) roads are classified as in “good”, “fair” or “poor” condition. Roads that are rated as in “good” condition are excluded due to their perceived lack of needed maintenance. The remaining road system provides an estimate of the total cement potential in the U.S. on systems that would be relevant FDR applications. Size of the existing paving market The United States’ road system is large. Not all roads, however, are candidates for repaving in a given year. The maximum annual potential, cement or otherwise, is estimated in a three step process, nationally and by state. The first step is to identify the size of the stock of roads, in terms of lane miles. In the second step, roads identified as in “good” condition are excluded from the analysis since they are not in need of immediate repair. In the final step, stock of roads that are to be rehabilitated are converted into annual paving activity and further distilled by reclamation activity. This represents the maximum market potential of which FDR with cement market changes can be assessed against.
Paved Lane Miles (2010)Census Region Interstate Major Arterial Minor Arterial Collector Local Total
Road System by Class
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According to the Federal Highway Administration’s (FHWA) data on lane miles by surface type, 5.3% of all paved roads employ a concrete surface. While concrete is used to surface 29% of the total primary road system in the United States, it captures less than 3% of the secondary road system (these are largely local roads). The secondary road system is responsible for the lion’s share of paved lane miles, which totals nearly 4.3 million, while the total primary road system equals to roughly 1.3 million lane miles. For the purpose of this study, roads which are already paved in concrete are excluded from the analysis. The rigid nature of concrete and/or pavement depth is not appropriate for full depth reclamation. Composite surfaces are a mix of hot mix asphalt (HMA) and portland cement concrete (PCC). Occasionally the pavements are initially constructed using a mix of both materials, but through industry consultation it is safe to assume this category represents original PCC pavement which has been rehabilitated with a HMA. For analysis purposes, all composite lane miles are also excluded from FDR with cement potentials.
Total Primary Roads Total Secondary Roads Total Road System
Total Primary Roads Total Secondary Roads Total Road System
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Following the omission of concrete and composite surfaces, the remaining asphalt pavements can be identified by class. Unsurprising, 92% of the stock of local roads are FDR candidates given their prevalent asphalt paving market shares while interstates are much less feasible. FDR is traditionally considered a rural application; however, existing pavement types suggest 84% of urban roadways are FDR candidates. Cement slurries and dust mitigation techniques are ideal for city environments provided underground utility lines are not shallow. During urban applications, base material may need to be added/removed for curb alignment which could partially reduce the cost savings of FDR over conventional reconstruction; therefore, a quarter of urban stock was removed for analysis purposes. Roads not considered for FDR in a given year. Moving beyond pavement types, not all roads are candidates for reclamation in a given year. Roads that have recently been paved or are in good condition are typically not candidates for maintenance. These roads are excluded. PCA used the International Roughness Index (IRI) data from the FHWA as a proxy for road quality. The IRI is a universal measurement used to evaluate the smoothness of a road.
InterstateOther Principal ArterialMinor Arterial CollectorLocal
TotalSource: FHWA --Tables HM-60, PCA Analysis
50%
91%
FDR Application by ClassShare of roads available for FDR based on existing pavement type
Classes of Road
86%
89% 84% 87%
93%
Rural UrbanOverall Road
Systems
92%
46%71%82%90%92%
85%75%
43%66%78%
Not <60 toLikely 94
95 to Possible 194
195 to220>
TotalSource: FHWA --Tables HM-64, PCA Analysis
IRI Cohort
Poor Condition 1,778 707,491 709,270
1,280,684 4,296,402 5,577,086
Ideal
Good Condition 952,758 677,477 1,630,235
Fair Condition 326,147 2,911,434 3,237,581
FDR Candidate
Road ConditionsPaved Lane Miles
Road Quality
Primary Roads Secondary Roads Total Road System2010 2010 2010
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PCA divides the IRI data into eight cohorts measuring road quality1. Low IRI measurements imply good road quality. PCA excludes roads in the two lowest IRI cohorts and are referred in the above table as “Good Condition”. High IRI measurements imply poor road quality and in many cases symptomatic of reflection cracking and/or base failures. All road condition categories other than those rated ‘good’ are considered candidates for paving. On road condition alone, 71% of all paved lane miles qualify as potential FDR candidates in the event of rehabilitation. Of the primary road system, about 26% of lane miles are candidates for resurfacing or reconstruction, while approximately 84% of the secondary road system (Local and Collectors) fall into this rehabilitation category. The two excluded IRI cohorts (<60, 60-94) represent 29% of all lane miles in the U.S. PCA’s analysis assumes no need for maintenance among these IRI cohorts during a given year due to their lack of rehabilitation need. Converting the stock of roads into annual paving activity. In an ideal world, transportation agencies would rehabilitate all roads that deteriorate beyond a predetermined point. Budget constraints, however, force DOT’s to prioritize paving initiatives and only repair a small portion of their road stock in a given year. This impacts annual paving activity. PCA’s estimates for rehab activity are based on analysis of Oman data. Complete and easily accessible Oman paving data was limited in many states for repaving activity. PCA assessed pavement maintenance activity for five states where the Oman database was considered most complete and easily accessible. These five states were combined using a weighted average and assessed against the total stock of DOT responsibilities to determine share of lane miles rehabilitated annually. According to this analysis, roughly 6% of the stock of roads that are candidates for rehabilitation actually get serviced in a given year.
1 IRI units are grouped into eight cohorts: <60, 60-94, 94-119, 120-144, 145-170, 171-194, 195-220, and >220. Roads with a low IRI value are smoother and in better condition, requiring less maintenance. These grades can be appraised as “<60” being the best conditioned roads, likely the newest, with the lowest priority of maintenance to “>220” being the most need of repair/reconstruction. From FHWA’s Highway Statistics table HM-64: Length by measured pavement roughness, all systems, PCA was able to distribute paved lane miles into the 8 IRI divisions. The limitation here was that there was only data for the primary road system and therefore did not include local or collector roadways. To find distributions for the secondary road system, PCA used averages derived from five individual state reports that focused on road conditions. It is also noted that IRI allowable tolerances can vary between road classes with interstates having a higher tolerance. For analysis purposes, all systems are assumed to be bound in the same IRI rating in regards to identifying resurfacing candidates. Given interstates’ minor overall share, it is not expected to have a material impact on the analysis.
Not <60 toLikely 94
95 to Possible 194
195 to220>
Source: FHWA --Tables HM-64, PCA AnalysisIdeal
Poor Condition 0.1% 16.5% 12.7%
IRI CohortGood
Condition 74.4% 15.8% 29.2%
Fair Condition 25.5% 67.8% 58.1%
Road ConditionsPaved Lane Miles (%)
Road Conditions
Primary Roads Secondary Roads Total Road System2010 2010 2010
FDR Candidate
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Maintenance schedules are likely to vary depending upon the roads’ usage. PCA applied different rehabilitation schedules to different road types. Rehabilitation assumptions among different road types were based on the overall average of 6% of stock. Higher traffic roads need to be serviced more frequently. Local roads that are used less or carry much lighter loads, do not receive the same level of attention and repaving is more likely allowed to be postponed in lieu of higher priorities. PCA, as a result, assumes nearly 4% of local and collector roads need to get repaved annually. In contrast, higher use roadways, such as interstate roadways, need repaving more often. PCA assumes 7% of these roads are rehabilitated annually. Following similar logic, other principle arterial and minor arterial are assumed to be repaved at a rate of roughly 6% and 5%, respectively. These assessments are based on a rather small sample of state paving activity. PCA, as a result, performed two cross-checks on these results. Both cross-checks generally validate the conclusions reached using the Oman sample. For the total stock of roads, using the Oman data, PCA’s analysis implies repaving occurs every 23 years – 18 years for primary roads and 26 years for secondary roads.
Section 2: FDR with Cement Potential A simple approach toward estimating FDR with cement potential. To convert lane miles into potential cement volumes, the amount of cement used in reclamation must be assessed. To this end, PCA conducted a survey of concrete paving engineers and regional promotion executives. Based on the survey results, and further discussion with concrete paving experts, FDR with cement volume assumptions were determined. Model assumptions are based upon 6” depth, and 12-foot lane width. Based on the assumption of a 5% cement addition rate (5% cement content, 95% reclaimed materials), 86.2 metric tons of cement per lane mile is assumed to be used in the following analysis. Given annual repaving levels, PCA estimates the potential volume of cement that could be used if FDR was applied to the qualified roadways. Two market potentials for FDR are offered based on market penetration assumptions. The annual maximum potential estimate of nearly 20.2 million metric tons by 2020 assumes all roads in the FDR with cement Candidates subcategory are reclaimed. If 10% of the resurfacing market were to use FDR with cement it would imply nearly 2.0 million metric tons annually by 2020, and 2.2 million metric tons by 2030. Stated alternatively, every one percent increase in FDR of overall activity translates into more than 200,000 metric tons of cement consumption.
Overall FDR with Cement PotentialEstimated FDR with Cement (Metric Tons) Volume Potential By Market
United StatesTotal Primary Roads Total Secondary Roads Total Road System
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Keep in mind, this potential is an estimated maximum for FDR in a given year based on current road maintenance activity trends. However, not all roads are fully reclaimed. The subsequent estimates consider the realistically achievable, or promotable, potential of FDR with cement. The above overall market potential offers one simple conclusion – the FDR with cement market potential is immense. FDR is not applicable for the entire pavement rehabilitation market. Full depth reclamation is a possible solution to most pavement repairs. It is, however, often a last resort for a deteriorated roadway and usually reserved for roads with granular bases. Minor rehabilitation of asphalt pavements is often performed through partial milling of the pavement followed by an overlay that uses the existing surface as a base. Data regarding the actual usage of FDR by road system does not exist. As a result, PCA must estimate history. To do this, PCA relied upon industry consultation and Oman bid lettings data. Using Oman data in a relatively small sample of states, PCA identified projects with cold asphalt reclamation. Cold asphalt reclamation is a process performed without the use of heat. Two to five inches of the current road surface are pulverized down to a specific aggregate size, mixed with a rejuvenating asphalt emulsion, and then reused to pave that same road. Projects with cold asphalt reclamation indicate a potential for full or partial depth reclamation. Based on this approach, full-depth reclamation is occurs in 15% of all flexible pavement projects. Unfortunately, the Oman data base survey is limited and was based on results from only five states. Compared to some states where very little activity occurs, the sampling employed may have a tendency to overestimate FDR usage. PCA discounts the Oman survey results and assumes full-depth reclamation occurs in 10% of all flexible pavement projects. Compared against total paving activity, PCA estimates the portion of reclamation to share of overall resurfacing activity. PCA assumes that 85% of asphalt pavement maintenance consists of overlays and other surface maintenance projects that do not account for base material maintenance, 10% are full depth reclamation (using any binder, cement or otherwise), and 5% are complete reconstruction with virgin materials.
Based on these assumptions, the FDR applicable market is much smaller than the entire surface maintenance market. PCA estimates the total 2010 resurfacing market comprised of 238 thousand lane miles. FDR only competes for roughly 101 thousand lane miles. Based on this logic, the maximum FDR with cement potential at 100% penetration is slightly more than 10.9 million metric tons in 2020, compared to 20.2 million metric tons for the total FDR market (which includes all processes, cement based and non-cement based). Cement’s FDR processes compete against other processes. Full depth reclamation is not unique to cement. Base stabilization practices can consist of mechanical and/or chemical stabilization processes. For chemical stabilization, various subgrade modifications in the place of cement such as asphalt emulsion, foamed asphalt, lime, flyash and other proprietary agents can be utilized in the reclamation process. Based on a PCA survey analysis, cement has nearly a 30% share of the entire FDR market, no stabilizer is used in roughly one quarter of all FDR processes, asphalt emulsion and foamed asphalt have roughly a 20% market share, lime, fly ash and other processes
Promotable FDR-C PotentialEstimated FDR with Cement (Metric Tons) Volume Based on 50% Reclamation Assumption (less 25% urban)
United StatesTotal Primary Roads Total Secondary Roads Total Road System
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account for the remaining 30% of the FDR market. Based on road quality, reconstruction activity and cement market share, it is estimated that FDR with cement represents as much as 930,000 metric tons of cement consumption currently. Of this, PCA estimates that nearly all of the opportunities exist among secondary roadways (95%). FDR with cement potential may be helped by an improving competitive position Nearly 96% of all paved roads in the United States contain some form of asphalt paving. Asphalt pavements have been shown to have shorter functional lifespan than rigid pavements and incur higher routine maintenance costs2. Historic initial bid price advantages have greatly assisted asphalt pavements in achieving such a high market share. Cost dynamics are changing as concrete paving gains competitive initial costs; however, the fundamental fact remains that the vast majority of pavements are asphalt. FDR with cement allows for a paving opportunity that removes the zero sum game of competing paving materials. In the most fiscally responsible sense, reconstructed roads reclaimed using FDR would be overlaid in concrete. But the simple fact remains that despite concrete market share gains, the vast majority of paving activity remains asphalt. A fact finding study performed by the Virginia Transportation Research Council (VTRC)3 found that asphalt roads overlaid upon a treated FDR base require much less maintenance. Based on VTRC LCCA assumptions, a traditional four inch asphalt overlay will need to be resurfaced six times in a 50 year service life. The same road with a FDR treated base would require four resurfaces. PCA reaffirms these assumptions based on 2005 research report spanning 20 years which found roads reconstructed with the FDR with cement process have a life expectancy up to three times of non-treated highways. Based on VTRC’s LCCA analysis, a road with FDR base offers a 16.3% cost savings over the life of the project. It should be pointed out this analysis assumed 3% materials cost inflation rate for asphalt—likely low given the changing energy price landscape. VDOT acknowledges their assumptions are conservative pointing out industry reports that place FDR LCCA cost savings as high as 50%4 over traditional projects.
2 The New Paving Realities: The Impact of Asphalt Cost Escalator Clause on State Finance found a significant correlation between highway maintenance costs and oil prices through the large stock of asphalt roads http://www2.cement.org/econ/pdf/escalator_report_2-27-12.pdf 3 Analysis of Full-Depth Reclamation Trial Sections in Virginia assessed three trial sections from the 2008 construction season. Analysis included various stabilizing agents and application methods. Hypothetical LCCA analysis was conducted to measure cost impacts. Published 2011. http://www.virginiadot.org/vtrc/main/online_reports/pdf/11-r23.pdf 4 42% cost savings - Georgia's Use of Cement-Stabilized Reclaimed Base in Full-Depth Reclamation, National Research Council; and up to 50% Full-Depth Reclamation: Recycling Roads Saves Money and Natural Resources, SR995, PCA, 2005
To place this cost savings into context, an estimated 237,000 lane miles maintained in a given year in the United States, of which 166,000 are secondary and largely existing asphalt surface. Of these roads receiving maintenance, an assumed 70% are asphalt resurfacing projects at an estimated cost of $301,312 per lane mile. If 5% of these projects were to be reclaimed using FDR with cement, it would provide state, county and local officials a combined $408 million savings over their project lives.5 Similarly, it is estimated 10% of the 237,000 roads maintained each year require reconstruction. If FDR were to be applied to half of these which already need reconstruction, paving agencies would save an estimated $335 million per year. If repurposed, this savings could be used to resurface an additional 1,100 lane miles annually. Keep in mind, these estimates are based on an assumed 20% cost savings. Compared to similar analysis’ FDR cost reductions of up to 50%, PCA feels these estimates are conservative. Increasingly fiscal pressures will build on states to provide entitlement services to an aging population. Currently, states’ Medicaid spending exceeds education spending and according to the National Association of State Budget Officers could account for on third of all state spending within 20 years. At the same time, demands to expand and maintain roadways will increase. State DOTs are likely to intensify their search a for spending efficiency. Not only does the Virginia study point to FDR with cement as one candidate for new spending efficiency practices, the savings are likely to be even greater in the future. Indeed, PCA expects market share gains in cement based FDR may occur in the coming years due to improving relative cost competitive position. This assumes the continuance of promotion education and advocacy successes that have been achieved in recent years and allows for changes in the relative price of cement versus bitumen additives. The feedstock for asphalt (oil) plays the dominant role in determining its price. Correlation analysis between annual percent changes in oil prices and the six month lagged annual percent change in asphalt prices suggest asphalt prices rose 7% for every 10% increase in oil prices during the past 10 years. Currently, oil prices are high by historical standards and are expected to rise further as global demand increases. Oil prices are expected to experience a long term-rise because the global economy is undergoing structural change. Emerging and lesser developed economies account for a greater proportion of global GDP growth, and as a result, are placing greater demand on commodities. The Energy Information Agency (EIA) agrees with this scenario for world growth and the resulting impact on world oil prices. According to the EIA’s base case scenario, oil prices are expected to rise to $132 per barrel by 2025 and nearly $190 per barrel by 20356. PCA estimates that a 1% reduction in bitumen additive market share would result in 44,000 additional tons of cement demand in FDR projects. This assumes that cement based additives realize a full market replacement gain. In actuality, lime, fly ash or lack of a stabilizing additive would also fill the void. If cement were to obtain half of the market share shift, a 5% reduction of petroleum based additives would translate to 110,000 metric ton increase to cement demand. Alternative FDR applications PCA’s foregoing estimates are based on analysis of the rehabilitation of existing paved roads. Up to this point, unpaved roads have been excluded from the analysis. These roads offer opportunity for FDR applications and must be included for a comprehensive assessment of the market.
5 Analysis based on VRTC’s life cycle cost assumptions. 6Annual Energy Outlook 2014 Early Release, DOE/EIA, April, 2014.
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Over 2.8 million lane miles in the U.S. are unpaved, or 34% of the total network. Nearly 96% of these roads are rural and 87% have a local designation. FDR with cement can be applied to existing unpaved roads as a means of soil stabilization or as base treatment for future paving. Over the last eight years the net change in unpaved lane miles has been an annual average decline of 4,000 lane miles. This decline is in the context of an annual net increase of 33,000 in paved lane miles. Again, data is very limited but PCA assumes a large portion of reduced unpaved lane miles is due to road improvements to paved surfaces. If half of the lost unpaved lane miles were improved using FDR with cement techniques, it would result in an annual increase of nearly 170,000 metric tons of cement. Most unpaved lane miles are not paved for a reason. Inclusion of paved miles to a road network is a commitment to increased future maintenance costs. However, with the recent rise of shale oil & gas exploration, PCA believes it creates a unique opportunity for FDR with cement of rural unpaved roads.
Shale field exploration often times is located in remote locations only accessible by roads that are graveled or thinly paved routes never designed to handle the number of vehicles and the large-scale heavy hauling they are now subject to. As a specific example, a report released by the Upper Great Plains Transportation Institute (UGPTI)7 outlines the future need in the amount of $7 billion for road repairs in North Dakota, of which unpaved roads contribute to 72% of the expected cost. Specially, oil exploration counties are expected to account for 53% of these funds despite representing only 17 sparsely populated counties of North Dakota’s 53 counties. Much of the increase in costs is due to overuse of under-designed roads. A typical gravel road has a gravel cycle of five years and blade interval of once per month according to the UGPTI. Roads impacted by shale drilling are instead found to have their gravel cycle shortened to two to three years and require a blade interval of twice a month. This rise in need effectively doubles the cost of the state’s unpaved roads. Increased oil exploration is typically followed by a tax windfall from impact fee and/or royalties. Therefore, as the need placed on infrastructure increases, so does the financial means to address it. FDR with cement and similar soil stabilization applications provide a unique solution for counties and state agencies with dedicated infrastructure funds. Base treatment and soil stabilization applications could reduce and help restore the shortened gravel and blade cycles of unpaved roads.
7 An Assessment of County and Local Road Infrastructure Needs in North Dakota—report discusses an expected future need of $7 billion to maintain the State’s road network in response to increased energy exploration truck traffic. http://www.ugpti.org/downloads/2012_road_investment_needs_final_report.pdf
North Dakota is not unique. Marcellus and Eagle Ford shale fields have also had a profound impact on local counties through economic windfalls and increased needs. Nontraditional plays continue to be found in regions throughout much of the continental U.S. As global economies recover and energy prices rise, it will become increasingly economical to explore future non-traditional shale oil plays. Tax windfalls and unique needs make shale field exploration an ideal candidate for FDR with cement promotion efforts. To put the opportunity into perspective, PCA estimates 32% of unpaved roads lie in oil basins. If only 10% of these roads were to be considered FDR with cement candidates it would add an additional 3.9 MMT of cement potential. FDR with cement market projection to 2030 PCA estimates current applications of FDR with cement at roughly 930,000 metric tons. Keep in mind this amount relies on multiple assumptions given the lack of existing data on activity and market share of additives. In fact, PCA’s Survey of Portland Cement Consumption by User Group reports only show 150,000 metric tons of cement is used in FDR with cement applications annually. It is widely understood hat the survey results understate the market but does highlight the nature of the error risk. In light of this data gap, it is difficult to make forecasts with any reasonable measure of confidence. Given this caveat, PCA’s forecasting approach incorporates several key elements and assumptions regarding the rehabilitation of existing roadways with FDR as well as for the unpaved market. Consider the following key assessments used to formulate PCA’s projections. For paved roadways, FDR usage will accelerate: For existing roadways PCA assumes that overall FDR paving activity will accelerate. During the harsh economic downturn overall paving activity was depressed. Prior to the recession, for example, state governments spent roughly 2.4% of discretionary budget on construction activity. During the recession this figure dipped to 1.7%. ARRA funding supported some paving activity during the downturn, but this spending seems to have been concentrated on more highly travelled roads. Maintenance on roadways, particularly local roadways, was reduced. Two phenomenon were generated from the reduction road spending. First, pent-up demand for all roadwork was generated. Second, reduced spending led to a focus on maintenance among highly travelled roads. Road deterioration among lesser travelled local roads likely resulted in road quality declines– perhaps to the extent requiring rehabilitation where an FDR remediation could be a practical solution. As a result, PCA’s forecast assumes an acceleration in overall paving activity and a slightly higher share in FDR usage. Using longer-term state discretionary spending on construction, PCA assumes a local roadway repaving schedule of roughly 5% rather than the 4% experienced during the downturn. In addition, Market research indicates that roughly 10% of all repaving activity employs FDR. Due to the likely deterioration of local roadways caused by fiscal neglect, it is likely that FDR’s share will grow. PCA assumes that the FDR share of paving activity will grow from 10% to 15% by 2020. For paved roadways, cement share of FDR will increase: Based on a PCA survey analysis, cement has nearly a 30% share of the entire FDR market, no stabilizer is used in roughly one quarter of all FDR processes, asphalt emulsion and foamed asphalt have roughly a 20% market share. Lime, fly ash and other processes account for the remaining 30% of the FDR market. PCA expects market share gains in cement based FDR may occur in the coming years due to improving relative cost competitive position. Correlation analysis between annual percent changes in oil prices and the six month lagged annual percent change in asphalt prices suggest asphalt prices rose 7% for every 10% increase in oil prices during the past 10 years. Based on this analysis and EIA’s oil price projections, asphalt product prices could be expected to rise roughly 19% by 2025 and 58% by 2035.
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With these rising asphalt prices, concrete’s market share should grow. Using Oman data, PCA estimated that concrete’s market share for overlays increases 0.14% for every 1% rise in relative asphalt prices. While the overlay and FDR markets are different, state and local governments’ sensitivity to relative price changes may not be all that different. Lacking enough historical FDR data to conduct relative price sensitivity, PCA assumes the FDR market’s sensitivity is equal to the overlay market. PCA believes this is a conservative assumption.
PCA assumes concrete prices rise in-line with inflation – or 2% annually. Our calculations also take into consideration the impact of NESHAP on cement and concrete prices by introducing a one-time increase in 2015 reflecting cement plant compliance costs. PCA uses this correlation equation and projects expected market share gains for the overlay market. These market share gains are then applied to promotable FDR paving activity. However, a decline in petroleum based additive use will likely not lead to a direct gain in cement market share as items such as lime or flyash will likely also gain share, or decision makers may opt for no chemical stabilization. Given this, PCA estimates that the cement share of FDR will increase from 28% in 2012 to 31% in 2020 and 36% in 2030. Keep in mind, this analysis only assesses potential relative price impacts of rising energy prices on market share. Cement is widely available and not subject to potential supply constraints such as flyash in the event of a reduction in coal powered electrical generation. Cement has also been viewed as a superior stabilizer over competing agents on a performance basis8. If cement can gain a technological advantage, more substantial market share gains can be expected. For paved roadways, FDR with cement tonnage is expected to triple by 2030. PCA expects local road paving activity will accelerate. Due to past neglect, the FDR share of that paving activity is expected to increase. Furthermore, concrete’s relative price advantages are expected to continue and translate into share gains of the FDR market. Based on these key assessments, PCA expects FDR with cement will grow from roughly 930,000 metric tons currently to more than 2.9 million tons annually. For unpaved roadways, shale oil & gas exploration is expected increase FDR cement tonnage. Through the recent rise of shale oil & gas exploration, PCA believes it creates a unique opportunity for FDR with cement and rural unpaved roads. Over 2.8 million lane miles in the U.S. are unpaved. PCA estimates 32% of unpaved roads lie in oil basins, or roughly 900,000 lane miles. Not all energy basins, however, will be developed by fracking technology, particularly in light of concerns by environmentalists. Currently, the Bakken, Marcellus and Eagle Ford formations are estimated to represent 5% of the unpaved roads. By the end of the forecast horizon PCA assumes the share of unpaved oil field will likely double to 10% of all unpaved roads as exploration and production expands to nontraditional fields. PCA assumes 20% of these roads can be considered FDR candidates. Given this assumption, shale oil & gas exploration is expected to add 527,000 metric tons of cement by 2020, and 765,421 by 2030. FDR with cement tonnage outlook. The FDR cement market potential is immense. Through conservative assumptions, paving activity, FDR adoption, and FDR cement market share gains, PCA estimates the FDR market targeting existing paved roadways could reach 1.9 million metric tons of cement by 2020, 2.3 million by 2025 and 2.9 million by 2030. Based on assumptions regarding the impact of shale oil and gas exploration, PCA estimates an additional 526,000 tons of FDR cement may
8 The University of Texas at San Antonio was tasked to evaluate premature pavement failure of past FDR projects in which used asphaltic emulsions. Their findings recommended using portland cement as the alternative stabilizing agent. UTSA Report No. 010-003
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materialize by 2020, 644,000 by 2025 and 765,000 by 2035. Combining estimates regarding the existing paved and unpaved roadways yields total FDR cement growth projections of roughly 930,000 metric tons currently to 2.4 million metric tons by 2020, 2.9 million metric tons by 2025 and 3.7 million metric tons by 2030. Based on this analysis, PCA estimates only 7.5% of the FDR market is currently captured suggesting tremendous growth potential Section 3: State Rankings of FDR with Cement Potential PCA performed a four step state-by-state ranking process that included both quantitative and qualitative factors to assist in regional promotion guidance. Using proxies, PCA ranked states by the repaving market size, unpaved lanes miles, oil field exposure, and ability to spend. Variable weights were assigned to each category by relative importance. FDR with cement promotable market size (Weight: 30%) Ranking for the FDR market size was determined based on the stock of miles and road quality. Total lane miles in need of repaving were based on target FDR cohorts. This proxy captures relative market size and advances states with large FDR with cement opportunity in terms of high stock of lane miles with reconstruction needs in the full depth reclamation arena.
Unpaved market size (Weight: 20%) Unpaved lane miles provide a unique opportunity for FDR as existing gravel aggregate can be mixed with cement for base stabilization. With the strengthened base, many agencies looking towards road improvement have saved money by opting for chip seal treatment rather than an asphalt layer9. Given the large recurring maintenance requirements of graveled roads through blading and aggregate replenishment, states with large volumes of unpaved lane miles provide an enhanced opportunity for FDR with cement promotion efforts.
9 County Uses of FDR with Cement shown to save 36% on cost when using chip seal rather than 2in HMA surface. http://www.roadrecycling.org/PL621.PDF
StateMetric Tons
StateMetric Tons
1 Texas 1,273,653 11 Tennessee 324,2372 California 708,027 12 Washington 294,2333 Florida 553,625 13 Kentucky 289,3514 North Carolina 494,158 14 Alabama 288,1485 Georgia 440,059 15 Indiana 285,2256 Pennsylvania 430,042 16 New York 282,3857 Ohio 374,606 17 Virginia 278,3208 Wisconsin 359,554 18 Missouri 264,5689 Minnesota 325,312 19 South Carolina 246,715
10 Il l inois 324,763 20 Arizona 237,100Source: PCA
Paved FDR-C Promotable Market Size - Top States (2020)
Energy basin lane miles (Weight: 20%) Unpaved lane miles in oil fields pose a substantial opportunity for FDR promotion. PCA estimates nearly 3.9 MMT of promotable potential could exist in these markets. However, the opportunity is very much localized. Through a process of overlaying lane miles with EIA oil basin maps PCA estimated rural unpaved lane miles with energy exposure.
Ability to spend (Weight: 30%) Ranking for states’ ability to spend was a two-fold process. First, states were ranked by their overall fiscal health. Second, states were ranked by the level of commitment toward spending on transportation. PCA assigned equal weights to each estimate to form an overall “ability-to-spend” ranking.
State Lane Miles State Lane Miles1 Texas 356,557 11 Colorado 110,7302 Kansas 206,693 12 Montana 101,9563 Minnesota 176,027 13 New Mexico 97,1194 Missouri 157,781 14 Michigan 95,0275 Oklahoma 151,462 15 Il l inois 76,1276 North Dakota 143,211 16 Georgia 75,5157 Nebraska 128,926 17 Washington 74,7818 South Dakota 127,251 18 Arizona 69,7359 Arkansas 124,529 19 Alabama 62,502
10 Iowa 123,537 20 Idaho 60,257Source: PCA
Unpaved Market Size - Top States (2020)
State Lane Miles State Lane Miles1 Texas 173,068 11 Louisiana 30,3312 Oklahoma 107,186 12 Montana 28,3463 North Dakota 85,275 13 Il l inois 28,2384 Michigan 69,726 14 West Virginia 26,8825 Colorado 47,778 15 Nebraska 18,4886 Alabama 39,717 16 Ohio 18,0887 Kansas 38,699 17 Utah 15,2098 Missouri 36,374 18 New York 14,9149 Iowa 36,155 19 Kentucky 13,915
10 Indiana 34,500 20 Wyoming 13,062Source: PCA
Unpaved Oil Basin Market Size - Top States (2020)
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State fiscal health rankings are based on tax revenues, capital expenditures, government employment trends, and unfunded pension liabilities. The components were combined to create a fiscal health metric which allows for state comparisons. The proxy serves as a guide for states that run the risk of future transportation budget cuts. State commitment to transportation spending was ranked based on average transportation funding dollars per lane mile. Using National Association of State Budget Officers’ Expenditures Report,10 spending volumes were assessed based on general funds, federal funds, gas taxes, bonds, and ARRA funding sources. These expenditures were then overlaid with Florida DOT highway construction cost estimates11 to determine agency funding by lane mile. The proxy serves to show relative transportation funding commitments to identify states that prioritize highway funding. FDR rehabilitation processes’ cost savings may be more receptive to states in poor fiscal condition. However, states were ranked based from strongest relative ability rather weakness to identify regions which have the means to warrant a stronger ROI of promotion efforts. With that said, even in the strongest of state economies there are local agencies with tight budgets.
Potential promotion risks Survey results revealed potential risks to PCA estimates of FDR with cement volumes. It should be pointed out the survey is not directly representative government officials. Rather, the survey was conducted of industry promotion leaders and their experiences with various government agencies. Attitudes of government decision makers towards FDR with cement are believed to be the most favorable at the local level and subsequently become less favorable through each higher level of government. Up
10 State Expenditure Report – NASBO. Table 38 http://www.nasbo.org/publications-data/state-expenditure-report. Expenditure series compiled from 2000-2012 reports. 11 Florida DoT Highway Generic Construction Cost Model. ftp://ftp.dot.state.fl.us/LTS/CO/Estimates/CPM/summary.pdf
to 30% local governments are implied to have a favorable attitude perform FDR with cement. Overall, most agencies have a neutral stance while state agencies have the largest implied unfavorable rating towards FDR with cement. The more favorable opinions held by County and Local governments are encouraging given their large inventory of roads that are strong FDR candidates.
Lack of awareness was cited as the primary reason for the prevailing neutral opinion. There was a clear theme of survey responses that open houses and demonstrations have proved very successful for agency buy-in. It is also believed that local governments have a more favorable opinion due to successes of past promotion efforts. In terms of regional variance, the South and West appear to have the most favorable perceptions of FDR with cement.
When asked of future expectations of FDR with cement adoption respondents were overwhelmingly optimistic with 82% expecting growth in the number of FDR with cement projects in the next five years while only 9% expected a decline. Posing this kind of question among industry promotion leaders runs the obvious risk of viewing FDR cement potential through rose colored glasses; however, it does point out industry support of promotion efforts and perceived opportunity for success. State rankings conclusions PCA combines its assessments on the paved and unpaved market size as well as ability to spend, to form its state-by-state rankings. The top 10 suggested states represent 35% of the promotable market and the top 20 represent 63%.