Ethanol Production slumps amid rail challenges

Source: Amanda Peterka, E&E reporter • Posted: Friday, March 14, 2014

Ethanol production slumped to its lowest level in two months last week as winter weather created challenges on the rail lines used to transport most of the nation’s alcohol-based fuel.
Ethanol production averaged 869,000 barrels, or 36.50 million gallons, a day last week, down 25,000 barrels per day from the previous week and the lowest production in eight weeks, according to data released by the Energy Information Administration.Stocks of ethanol also stood at their lowest level of the year. Ethanol stocks for the week ending March 7 were at 15.9 million barrels, a 2.4 percent decrease from the previous week.The slump in production comes as winter storms continue to buffet Northern states, creating a jumble of issues for railways that include frozen track switches, engine trouble and treacherous track conditions, according to the Renewable Fuels Association.

Most of the nation’s ethanol is produced in the Midwest and needs to be shipped to major markets on coasts and in Texas. About 70 percent of the nation’s ethanol is transported by rail. Railway delays have prompted ethanol companies to decrease production as storage facilities become full, said Geoff Cooper, the Renewable Fuels Association’s senior vice president of research and analysis.

“Nothing’s changed economically in that time period. So what’s driving this slowdown in production is clearly this logjam on the rails,” Cooper said. “We’ve had reports from a number of ethanol plants where they said their storage tanks on the plant are completely full and not able to move product out in a timely manner via rail because can’t get the tank cars there.”

The slow production comes after a time of high production for ethanol last fall as corn prices dropped and exports picked up to Brazil. Production peaked around 944,000 barrels a day in December.

Holly Arthur, a spokeswoman for the Association of American Railroads, said in an email that the railroads, like as modes of transportation, have been affected by the severe winter weather.

“As you can imagine, record cold temperatures, snow and ice have impacts on rail operations — from having to deal with snow and ice on infrastructure and equipment, to limits on how long employees can be outside,” Arthur said. “Railroads are doing all they can to address any service disruptions.”

But Cooper said the weather problems were compounded by the increase in rail cars being leased to transport crude oil from new production regions in the country.

“The rail car fleet is pretty well maxed out in terms of usage,” he said. “There really aren’t any spare tank cars sitting around like there have been in the past.”

According to the Association of American Railroads, the oil industry moved 415,000 rail cars of oil in 2013 compared to 9,500 in 2008, thanks to booming production in places such as North Dakota’s Bakken Shale play.

But crude oil still represents 1.4 percent of rail traffic, according to Arthur. She said the traffic was “not at all overwhelming volume given the industry still has not reached pre-recession traffic levels.”

More trains are also being used to carry grains as the corn industry has picked up again after the drought of 2012, according to the association. Carloads of grains transported by railroads were up 12.3 percent in February compared to January. Agribusinesses, though, have also reported delays in shipping their product.

Anthony Hatch, principal of ABH Consulting, a New York-based freight transportation research firm, said the railroads should be commended for being able to put together the infrastructure needed to transport so much new crude in such a short amount of time. BNSF Railway Co., one of the nation’s top freight lines, announced last month that it plans to spend $5 billion in 2014 on additional capital improvements and today said it was committed to restoring service levels as quickly as possible.

“We experienced growth on our network in 2013 in places we didn’t anticipate, some of which we forecast and, frankly, some we did not,” said BNSF spokeswoman Amy Casas, who added that every sector of volume increased on its network in 2013.

The delay issues hurting the ethanol industry are only temporary as the railways experience growing pains combined with an especially bad winter, Hatch said.

“There are certain areas where, all of a sudden, things are booming and resources are being stretched,” Hatch said. “After several mild winters in a row, the rail industry is going to come through this winter with a little bit of a hit.”