Rail bottlenecks stall ethanol shipments, raising prices

Source: By Russell Hubbard / World-Herald staff writer • Posted: Monday, March 31, 2014

Rail network delays have cut into ethanol shipments, raising the price of the fuel in recent days to highs not seen in almost three years.

Ethanol for April delivery sold for about $3.02 a gallon on the Chicago Board of Trade Thursday, an 81 percent increase over the low price during the past 12 months of $1.67 a gallon reached in November. This week’s earlier settlement price of $2.98 a gallon was the highest since July 2011.

Concern over availability and the consequent price jump stem from rail bottlenecks. Severe winter weather affecting tracks and skyrocketing use of train cars to ship oil and freight that has also been moved by truck have meant slow response times when it comes to picking up ethanol for shipment to fuel terminals, where it gets blended with gasoline.

Also affected have been shipments of corn, the grain that is distilled by ethanol plants into the alcohol-based motor fuel.

“This transportation bottleneck issue is impacting production, delivery, price, cost and time to market,” said Todd Sneller, administrator of the Nebraska Ethanol Board. “We talked about this trend in January as troublesome, but in less than 60 days it really turned into a traffic jam.”

When it comes to ethanol and railroads, a large swath of the Nebraska and Iowa economies are affected. Omaha is home to Union Pacific Corp., the largest U.S. freight railroad and employer of about 5,000 people in the metro area. It is also home to Berkshire Hathaway Inc., owner of Fort Worth-based BNSF Railway, the second-largest U.S. freight railroad and employer of 5,000 people in Nebraska.

As for the corn part of the equation, Iowa is the largest producer, and home to the most ethanol plants, 42. Nebraska is the third-largest corn producer and home to the second-largest roster of ethanol plants, 24.

Train delays can affect ethanol production, because plants have only so much storage. No place to put finished fuel means production shutdowns.

“We had to be down one day waiting for a train,” said Paul Kenney, chairman of KAAPA Ethanol in Minden, Neb.

The extreme cold and record snowfall in a large northern belt of BNSF’s operating area have been the main contributors, said Amy Casas, a spokeswoman for BNSF. Union Pacific did not respond to inquiries about rail system delays.

“Large snow accumulations make interchanging traffic with the other railroads very difficult,” Casas said. She said some BNSF operating areas have had a record number of days with temperatures below minus 15 degrees.

“To deal with those conditions, we have to run shorter trains and carry less freight to address the impact the weather has on the airbrakes of our trains,” she said. “At extreme temperatures, our employees cannot be outside for more than 20 minutes at a time, before having to come indoors for 10 minutes.”

Casas also said demand has been high for grain shipments because last year’s crops were harvested within a compressed period. Intermodal traffic, or that shipped by a variety of methods including rail, has jumped. Intermodal accounts for 50 percent of shipments at BNSF, while oil accounts for only 4 percent, Casas said.

All told, orders from shippers have backed up and it will take time to sort through them, Casas said. She said it is getting better: For the week of March 17, BNSF had 72 additional locomotives on the job and saw a 25 percent reduction in trains held short of final destination.

“The good news is that there is nothing systemically wrong that cannot be corrected,” Casas said. “BNSF is not favoring any particular commodity over ethanol. This is a case of rapid growth for several commodities using parts of our railroad network that hadn’t previously seen that kind of volume.”