Ethanol maker Green Plains says rail transport not keeping up as more embrace E15

Source: By Russell Hubbard / World-Herald staff writer • Posted: Thursday, October 30, 2014

Green Plains Inc., whose shares have climbed 80 percent this year, told investors Wednesday that higher blends of ethanol are making it into the nation’s gas supply but that congested rail networks make it hard to get it out there.

“The last couple of weeks or so, we are seeing a significant degradation of service on several carriers,” Green Plains Chief Executive Todd Becker said on a conference call, discussing rail service and third-quarter earnings.

At the same time, gasoline blended to form a fuel that is 15 percent ethanol, called E15, is growing in popularity, Becker said.

“We think there will be hundreds more stations offering it next year,” Becker said. “We are seeing big initiatives from very large retail chains to get this product in the pipeline.”

Omaha-based Green Plains operates 12 plants around the country, producing about 1 billion gallons of ethanol a year. The company Tuesday reported a third-quarter profit that jumped more than fourfold, to $41.7 million.

Additional gallons of E15, now available at only about 90 stations in 14 states, will boost volumes going forward, Becker said. He told analysts and investors on the conference call that the ethanol industry is working hard to persuade retailers. Consumers, he said, are already sold.

“The stations that offer E15 are the cheapest on the street and they are draining their tanks all the time,” Becker said. “The product gets sold when offered to consumers.”

Blending ethanol into gasoline can create a motor fuel that is cheaper than clear gas because ethanol, produced mainly from corn, is less expensive. Iowa and Nebraska are the top ethanol-producing states, and rank first and third in corn production.

Ethanol has its opponents, who say per-gallon savings are offset by lower mileage from ethanol’s lower energy content.

On the rail transport front, Becker said it was better than the previous quarter but has hit recent snags. All of the nation’s major freight railroads are now required to file weekly reports with the federal Surface Transportation Board. The reports were ordered after grain shippers complained that crude oil gets priority over other cargoes, a scenario denied by the railroads.

“We are still able to move product pretty well, but have seen some slowdowns of late,” Becker said.

The nation’s two largest railroads acknowledge problems. Omaha-based Union Pacific and Berkshire Hathaway-owned BNSF Railway say they are working to speed service by hiring crews, adding equipment and improving track.

“BNSF is working with our ethanol customers, including Green Plains, to make sure their products get to their ultimate destination,” spokeswoman Amy Casas said. “Our ethanol customers are experiencing gradual improvements on our railroad and have our continued commitment that we will add the resources necessary to handle all of our customers’ business.”

Union Pacific spokeswoman Calli Hite said Chief Executive Jack Koraleski discussed rail network problems during a conference call with investors and analysts last week, and pledged to remedy them.

“Union Pacific has increased its locomotive fleet by around 900 units since September of last year and will hire 5,500 new employees this year,” Hite said. “The company also has stepped up its overall resource plan to provide the level of service our customers have come to expect.”