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.
