Seventy percent of ethanol producers rely on railroads to ship product, according to the U.S. Energy Information Administration. The Rail Road Performance Measures website, a voluntary site for six major North American freight railroads, showed a 23 percent decrease in average speeds of the common manifest trains (multiple product carriers) from April 2013 to April 2014.

In the April 2 edition of This Week in Petroleum, EIA reported that ethanol stores nationwide dipped 4 million barrels below the average March levels of 20 million barrels. East Coast inventories last March reached 4.5 million barrels, the lowest since EIA began recording data in June 2010.

Ethanol plants generally have about five to 10 days of storage capacity, according to several company representatives. When storage runs out, there are three choices: shut down, go into an idle mode, or use trucking to move product off site.

Lamberton, Minnesota-based Highwater Ethanol CEO Brian Kletscher says, “I’ve got 10 days of storage. After that, we must shut down, but not for more than about 12 hours at a time.”

According to Kletscher, weather related train delays resulting in nine down days for Highwater at a cost of $1.5 million in lost income last year.

“Added cars and crews help, but mother nature overrules at times, and this must be factored into the bottom line. The key is to have a winter plan in place before the temperatures plunge. You’ve just got to monitor the weather systems and know that a delay anywhere along the system will create a domino effect,” says Kletscher.

“Rail delays have our attention, given last year’s experience,” says Mike Jerke, CEO, Guardian Energy Management LLC of Janesville, Minnesota. “Our solution is to keep the communication lines open with our marketers and actively stay ahead of car movements, where things are slowing down or speeding up. You’ve just got to be mindful.”

And to those new cellulosic facilities coming on line, Kletscher says, “If you’re plan’s not working, reach out to your fellow ethanol producers. We’ve been through it.”

Investment And Preparedness

“BNSF is working with our ethanol customers to make sure their products get to their ultimate destination,” wrote Amy Casas, BNSF director of corporate communications, in a statement to Biomass Magazine on Nov. 14.

The statement touted “an industry record capital investment of $4 billion to improve our network and expand capacity, particularly in the Northern region of our network to handle growth.” The investment includes 500 new locomotives as well as 6,000 new employees, representing 13 percent of a 46,000-person workforce. Better communication with customers is also promised.

BNSF posted a Winter Action Plan to its website Oct. 30 with detailed steps taken to keep engines from freezing and prepare for forecasted weather and emergencies. The tactics include increasing mechanical rapid responders by 25 percent, adding 800 new container and trailer spots at key intermodal facilities in the Chicago area, and increasing emergency generators and salt supplies.

Railroad Performance Measures website, which includes weekly statistics for cars on line, train speed, and terminal dwell, reported BNSF manifest train speeds steady since late November 2013, averaging about 19 miles per hour. Unit train speeds are up slightly to 20.8 from a fluctuation between a low of 17 and high of 22.3. Dwell times have changed little from a year ago November, but are down slightly from 30.8 hours in 2013 to 28.5 this year. That number reflects the average of all terminals.

BNSF is performing better than last February when its Galesburg, Illinois, terminal, which handles many ethanol cars from Iowa, reached a peak dwell time of 60 hours.

Al-Corn Clean Fuel in Claremont, Minnesota, sits on the CP line. According to CEO Randall Doyal, the company needs to ship roughly 120 million gallons or about one train a week. It has 250 cars in the fleet, which is fine if the cars are coming back on schedule. “Last winter, we had the railroad saying they were pulling a car, yet we had pictures of the car still sitting in Des Moines, Iowa.”

Doyal predicts seven years at least for the rail carriers to resolve what he sees as an over-committed and under-employed industry. “I think the railroads looked at their book of business a number of years ago and felt right sized.” Then the Bakken shale play opened up and, according to Doyal, “suddenly the railroads have more freight than they can shake a stick at. Ethanol took a back seat.”
The winter railroad debacle led RBob Dinneen, Renewable Fuels Association president, to write a public letter, run in part, April 3, by the Wall Street Journal, to the Association of American Railroads stating that the “sheer chaos” of the rail system damaged the ethanol industry by increasing prices that ultimately landed on consumers at the gas pump.

EIA reported on its website in April, “Rail congestion, cold weather raise ethanol spot prices,” that spot ethanol prices expanded by $1 in March between New York Harbor and Chicago. The spread is usually about 25 cents. The extra 75 cents is attributed to the winter railroad delays.

It further stated that ethanol futures prices suggest that market participants expect short-lived price increases as rail system congestion improves and producers increase production in response to prices.
As of Dec. 4, ethanol prices were at $1.77 per gallon, according to EIA.

3 Winter Options

According to a range of biofuel producers, there are only three options when delays back up storage—shut down, idle mode, or trucking.

Pipelines would be the safest, most efficient means to cover the open distances to major ports but Doyal says, “We’d need to move 10 times the volume to make the costs feasible.”

Eagle Ford Shale, an online oil industry market report, indicated a coming bottleneck back in 2011 stating, “We need more pipelines delivering crude in the Gulf Coast. We don’t have capacity, so oil marketers resort to railroad agreements.”

Trucking is limited due to costs as well as crude delivery demands. Only short hauls make sense for the trucking option.

Kletscher points out that the best plans made by railroads and ethanol producers alike can always be foiled by weather. Every operation has contingency and emergency plans that involve slowing or even shutting down, depending on management’s calculus of the alternative costs.

Plans like those of Highwater Ethanol, Al-Corn and the cellulosic producers all include avoiding shut downs. “The key is to first have a plan. Run through it periodically. Think today about worst cases and talk to your board about the costs,” Kletcher says.

“The issue with ethanol is a high water concentration. We use water for cooling plus the mash has a high water concentration. It’s better to not shut down,” Doyal says. Water in the lines must be kept warm in order to keep the distillation process going and the pipes from freezing.

“It’s all about logistics, whether a rail car is delayed or a truck tips over. We ship out by rail on a short line, so product can go either direction,” says Patrick Gruber, CEO of advanced biofuels maker Gevo based in Englewood, Colorado.

Getting important inputs in can also factor during extreme weather delays. “We slowed down due to an inability to get natural gas delivered over excessive cold,” Jerke says.

Taking realistic stock of what the railroad can honestly accomplish is part of the plan too. When trains are running on schedule, a smaller leased railcar fleet works for ethanol producers, but when they are not, issues arise. Al-Corn, according to Doyal, only needs 250 cars in its fleet, if the cars are coming back every five days or less as promised by the railroad. What the railroad called a “virtual pipeline,” didn’t perform under extreme weather conditions and increased crude oil production.

Government Intervention

Complaints of rate increases and unfair preference to the oil industry got the attention of legislators and federal regulators.

John Thune, R-N.D., Senate Committee on Commerce, Science and Transportation, and John D. Rockefeller IV, D-W.V., Commerce Committee chairman, introduced the STB Reauthorization Act of 2014 in September. The bill will “…increase efficiency of the Surface Transportation Board by changing internal processes and increasing timeliness of STB decisions to improve U.S. rail service,” according to a press release.

In October, the Surface Transportation Board initiated new weekly reporting requirements for all Class I carriers in order to “better understand performance across the entire network.” The data, which is not much different from the existing voluntary reporting at the Railroad Performance Measures site, is publicly available at www.stb.dot.gov. It includes summary of service in general, average train speeds by type of freight, total car types on line, average dwell time at origin, and more.

Hinging on Distribution

Doyal recalls the early ’80s, following the oil embargo and the big push for energy independence, working for small renewable producers in Portales, New Mexico. “The chemist told us the future is cellulose because of its massive availability and low cost to grow. He didn’t foresee the obstacles,” he says. While three celebrated new cellulosic facilities came online this year in the Midwest, with a fourth projected for early 2015, the biofuels industry as a whole remains concerned about the impacts of federal policy.

Kent Hoekman, former petroleum engineer now with the Desert Research Institute in Nevada, says, “Developing liquid renewable energy is easy. Man’s been converting starch to alcohol for thousands of years.” Even a technology that converts cellulosic feedstock to liquid fuel is now proven.  Hoekman reports that what’s hard today is launching a functional industry, from raw material to customer. “The whole thing has to work at cost and scale. You won’t see any mom ‘n pop operations,” claims Hoekman.

Hoekman ticks off the requirements: “feed stock supply chain, technology, infrastructure, transportation, distribution, customer acceptance, cost, codes and standards, regulations, environmental concerns, and investment. It takes big investment backing and a lot of skill.”
Gruber says transportation and cold weather are the least of his problems. “Unstable and unclear government policy is hurting us because it’s confusing for investors.”

“All ethanol producers have the same weather, transportation and storage problems” Doyal says. “We also share a common concern over the unpredictable stance of EPA toward renewables.”

All the hurdles, much like the original railroad expansion westward, circle back to investor interest and consumer acceptance, both of which can be very fickle. Fortunately, weather forecasts for 2015 are mild, comparatively.

Author: Carla Harper
carlamgarrison@gmail.com