Keep on Truckin’

Ethanol boom creates transportation challenges

By Stephen Thompson,
Assistant Editor

thanol producers are having little trouble finding buyers for their product, but getting it to market can be another matter. As the ethanol market matures, the availability of economical transport may make the difference between long-term profitability and failure.

Transportation infrastructure in the United States is meeting the needs of the ethanol market, but increasing volumes are creating challenges. Rail companies are scrambling to meet demand, but until new capital investments are in place, ethanol shippers may have to deal with a squeeze in the next few years.

Transport by truck is an economical option for short hauls — up to about 500 miles from the producer. Trucks have the advantages of being easy to obtain, offering operational flexibility and requiring lower expenditures for loading facilities than other modes of transport.

Currently, for short distances, there are few problems with using trucks, aside from possible local infrastructure deficiencies. However, for long distances, truck transport quickly becomes too expensive.

Problems with pipelines
Pipelines are by far the most efficient and cheapest way to move large amounts of liquid, costing only about a third of transport by rail or barge. According to the Association of Oil Pipe Lines, there are 95,000 miles of pipelines in the United States for transporting refined petroleum products — by far the most extensive such network in the world. About 70 percent of petroleum in the United States is moved through pipelines.

But piping ethanol poses problems. A typical pipeline carries a number of different kinds of petroleum products. A pipeline might ship several thousand gallons of high-octane gasoline, followed by a similar amount of lower octane gasoline, followed by a shipment of diesel fuel.

With nothing between the shipments to keep them apart, portions of each mix with the shipment ahead and behind. When the product reaches its destination, the mixed high- and lowoctane gasoline can be sold as part of the lower-grade shipment, but the mixed diesel and gasoline must be set aside and re-refined into the discrete products.

Unfortunately, shipping petroleum products leaves deposits in the pipes — deposits that ethanol — with its higher solvent properties — can dissolve, contaminating the shipment. Water can also get into pipelines. Petroleum products don’t mix with it; but ethanol is hydroscopic: it blends with water. As a result, with ethanol, instead of re-refining only a small part of the shipment, it may be necessary to re-refine all of it — or even discard some as hazardous waste.

Shipping ethanol in an E-10 blend with gasoline might seem a solution. However, water in the line can actually “strip out” the ethanol, again making it necessary to re-refine the entire shipment. Ethanol is also said to cause corrosion in pipelines, a problem that is still being studied.

Even if these factors are overcome, there’s still another, more basic problem: most existing pipelines simply don’t run in the right directions.

Wrong direction
Pipelines for refined petroleum products tend to run from the south — from refineries on the Gulf Coast — to markets in the north, including the Midwest, where most ethanol is produced. Crude-oil pipelines also supply Midwest refineries from the Gulf.

Although gasoline mixed with ethanol can be shipped from these refineries to limited regional markets, there still remains the problem of getting the ethanol to the refineries.

For shipment to the larger, coastal markets, the pipelines just aren’t there. This is particularly true on the West Coast and the huge California market. The Pacific coast has a pipeline supply network separate from the rest of the country.

About 55 percent of its supply of crude oil comes from Alaska — shipped in tankers from Valdez to ports such as Los Angeles and Anacortes, Wash. The rest is produced mostly in California, which also refines its own petroleum products.

How about dedicated pipelines? At the moment, there just isn’t enough ethanol volume to justify the huge capital expenditures required for a long-distance ethanol pipeline to any market. However, local pipelines linking ethanol plants in high-density areas, such as Iowa and Minnesota, with rail terminals are a distinct possibility.

Some authorities think that ethanol pipelines may become feasible if the use of E-85 becomes widespread. Bob Reynolds, of ethanol-consulting firm Downstream Alternatives Inc., thinks that if E-85 is mandated in the Northeast, a dedicated ethanol pipeline from the Midwest to the petroleum hub in Albany, N.Y., could be built.

However, the huge capital expenditure — $1 million to $2 million per mile for a small-diameter pipeline — could lead to a chicken-or-egg situation, in which politicians would be unwilling to establish such a mandate without a reliable ethanol supply, and investors would be reluctant to put up the money without such a requirement.

With pipelines not currently feasible, there are two practical methods of longdistance shipment: rail and barge.

Rollin’ on the river
Barges move about 800 million tons of freight a year, about 15 percent of the national total. They transport about 70 billion gallons of petroleum annually. Barges offer cost-effective transportation to refineries on the Gulf Coast and can be used in “intermodal” service — combining different modes of transportation to achieve higher efficiencies.

But there are limitations. The first is proximity of water transport to the ethanol source. Ethanol can be transported by rail to barge terminals and transshipped, but that adds to cost.

The second obstacle is the need for modernization of locks on the upper Mississippi River. Current locks are too small. That means that barge combinations — called “tows” — from the upper Midwest must be broken up to traverse each lock, and then reconstituted below. This can cause bottlenecks, and industry experts say that if the locks are not modernized soon, increased traffic will cause barge transport costs to rise substantially, also putting upward pressure on rail prices.

The availability of sufficient numbers of barges is a concern also, as is the freezing of waterways in the winter.

The attractiveness of water transport will depend on the circumstances facing each ethanol producer: what markets it wishes to ship to and the relative costs of different transportation modes.

Riding the rails
Railroads moved 6 million tons of ethanol in 2004, the most recent year for which figures are available. That’s a tiny fraction of the total rail tonnage of more than 1.5 billion tons. Rail carriers are currently meeting the demand for ethanol transport.

However, a sharp rise in general rail traffic over the past six years is straining capacity. With 37 new ethanol plants under construction and a 50-percent increase in production coming in the next few years, possible bottlenecks threaten serious delays in the short term.

Midwest cooperatives requiring transport for grain have been complaining for years about shortages of hopper cars and the railroads’ failures to meet their needs. For their part, the railroads are spending billions of dollars on upgrading their capacity.

The best way to move bulk cargo by rail is in dedicated “unit trains,” made up of a single cargo. This avoids the delays and costs associated with mixedcargo trains. The quicker a tank car can reach its destination, be unloaded and return, the more capacity it can carry over time and the quicker it can pay for itself (rail tank cars are usually owned or leased by the producer).

An ethanol producer shipping a few carloads at a time in mixed trains can expect to see its shipments delayed in marshalling yards as trains are assembled, and possibly delayed again along the way as the cars are switched between trains before reaching their final destination.

A unit train avoids such problems. Made up of about 95 tank cars, it shuttles between terminals. With each car holding 300,000 gallons, a unit train can carry 28.5 million gallons of ethanol. Taking current turn-around times of about six weeks into account, this means that a plant producing 120 million gallons per year could keep one unit train busy.

Smaller-capacity plants have to share trains. To make the unit-train system work efficiently, there must be a system for consolidating tank cars from various plants into the unit train, and a dedicated receiving terminal at the far end.

One such terminal is the Lomita Rail Terminal in Carson, Calif., owned by U.S. Development Corporation. Inaugurated in August 2003, Lomita is a huge facility capable of unloading 95- car ethanol unit trains in 24 hours. It is connected by pipeline to a blending facility that is part of a nearby Shell Oil receiving station for petroleum tankers, and is capable of meeting the ethanol demand for the entire Los Angeles Basin. Other terminals have been built in Albany, N.Y., Chicago and other major transportation hubs.

The Lomita terminal is served by the Burlington Northern and Santa Fe Railway Co. (BNSF), which runs unit trains under the trademark Ethanol Express. According to BNSF, one Ethanol Express originates in the Midwest headed for Lomita every three days. BNSF recently ordered 30 new locomotives to meet growing demand.

Unlike other carriers, BNSF has reportedly managed to provide a consistently good level of service to ag producers, apparently due in part to early strategic investments in infrastructure.

Limited options
Like grain co-ops, ethanol cooperatives that find themselves dependent on a single major rail carrier can find their options limited. This is true not only if the carrier is having problems meeting its obligations, but also in choices of destination and in negotiating favorable shipping rates.

Some short-line railroads, such as Iowa Northern Railway Co., are seeking to fill a niche market by providing connections with more than one major carrier. Northern Iowa is also offering to consolidate cars on its own lines, instead of in the switching yards of major carriers, claiming that it can save producers time. In addition, the railroad proposes a new switching yard financed in part by ethanol producers, to save even more time.

One bottleneck is a shortage of railcars: the sudden rise in demand has left manufacturers with a year-and-a-half backlog of orders for ethanol tank cars. New manufacturing facilities are being built, but shortages will persist for the next few years due to the continuing steep rise in ethanol production.

Rail is also an attractive option for shipping dried distillers grains (DDG). Because DDG is lighter than corn, larger hopper cars can be used. Some producers are exploring the use of shuttle systems, with incoming cars carrying corn and outgoing cars hauling DDG to feedlots in the same areas in which the corn originated.

Carriers adapting
It takes time for a new industry to reach top efficiency, and ethanol transportation is still being developed. Today it takes 24 to 36 hours for ethanol trains to offload and turn around — in contrast to coal trains, where operations have been refined for decades and which can be emptied in about six hours.

As carriers adapt, kinks will be ironed out. Extra rail side lines are being built, or planned, to deal with increased traffic. Production of rail tank cars should catch up to demand. And transport costs should eventually drop as more efficient methods are discovered.

September/October Table of Contents