If you have read the news lately, you have likely seen headlines about rising fuel prices and diesel shortages. These headlines can be alarming, especially for the construction industry, which relies on the supply chain for every project.
In late October, the Energy Information Administration (EIA) reported on distillate fuel inventories. Distillate fuels include heating oils, jet fuel, and diesel fuel that trucks, trains, and farm machinery rely on. The EIA noted that distillate fuels were at their lowest levels in more than 20 years.
Understanding Supply and Demand
Demand for distillate fuels often jumps every spring, as farmers begin planting, and every fall, as people start buying fuel for the winter. The last time the distillate level was this low was at the end of April 2008, as farmers were coming out of spring. So, it is alarming that levels are this low in the fall, and the EIA noted that October levels have not been this low since 1982, when it first began reporting this type of data.
Every trucker will tell you that diesel prices are high — more than $5 a gallon across the country — and one reason for those prices is the low inventory.
There are a few factors behind the low inventory and the diesel shortage. The first two are predictable: The demand for these fuels spikes each fall, but it does that every year. Also, this time of year, refineries often do maintenance when the weather is good, so their capacities are somewhat reduced.
Another factor was not so expected: A number of U.S. refineries have closed in the past few years due to profitability issues, so overall capacity is down.
But the most critical factor is the war in Ukraine. Before Russia invaded Ukraine, the United States was importing almost 700,000 barrels of petroleum products a day. Now, Russian imports have been cut off. Many were refinery inputs that helped boost distillate fuel supplies. Without those, refineries are struggling to produce enough diesel.
How This Impacts the Supply Chain
There are plans to ramp up imports from Europe, but it may be some time before the distillate market returns to normal levels. Some experts say it will be at least next summer. So, in the meantime, you may continue to face challenges with the supply chain. You may have difficulty getting the materials you require or getting them on time. These factors can lead to project delays and lost profits.
Advice for Contractors
As supply chain issues drag on, there are ways for you to combat material delays and shortages. First, review your contract. See what provisions you already have in place regarding delays. If you have a material substitution clause, use that to suggest alternative materials for those you cannot secure. Next, talk to your customers and see how you can resolve any delays or material problems you face. You may be able to discover solutions if you keep your communication lines open. Finally, before you sign any new contracts, ensure that you include the appropriate provisions to protect yourself and your company.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
About the author: Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information on this subject, please contact the author at firstname.lastname@example.org.
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