The City of Windsor is navigating the impact high oil prices are having on road construction materials thanks to lessons learned in previous years.
Windsor’s 2026 budget includes $163.8 million for roads alone but rising gas and oil prices have been impacting key materials needed for each project, such as asphalt cement (AC), a petroleum product that’s impacted by the price of oil worldwide.
According to the MTO’s AC Price Index, the cost of asphalt cement was $1067.25/tonne in February but started rising in March, hitting a record high of $1,582/tonne in July, a $515 difference.
The rise began shortly after Iran closed the Strait of Hormuz due to military action against that country by the U.S. and Israel, as nearly 20 per cent the world’s oil is shipped through the narrow but heavily used waterway, resulting in a rapid rise in oil prices.
Senior Manager of Contracts, Field Services, and Maintenance for Public Works Operations, Monika Grant, says last year, they really started to buffer their contingencies a little more after almost maxing out on a couple of projects due to the fluctuations in the market.
Grant says most of their tenders have an asphalt and fuel escalation clause to get the best pricing at the time the tender is issued.
“Still account for the risk with fuel escalation and its impact on asphalt escalation. As the prices go up, the contractors have minimal risk, and we have contingencies that offset those costs. On the other side, if prices were to go down, we would receive a credit on that as well,” she says.
Grant says they’ve had conversations with the heavy construction association to find a way to limit the risk on both sides.
“Before we’ve included these escalation clauses, the risk is all on them. If there’s a period of volatility, the prices will reflect that the risk that they’re assuming. We’ve had numerous conversations with industry to kind of find a method that works best for both and to get the best pricing for residents,” she says.
The last time prices for asphalt cement were this high was in May 2022, shortly after Russia invaded Ukraine, which saw the price hit $1270/tonne and reach a high of $1394/tonne in July 2022 before easing off in late 2022 into early 2023.