Move It or Lose It
By Jeanne Bernick
4/11/2008
Visualize a wheel hub, with spokes running in every direction to supply the nation’s long-term ethanol needs. That’s a bird’s-eye view of Manly Terminal, the first Midwest facility to store, trade and consolidate ethanol from small regional producers onto unit trains.
Located within 300 miles of more than half of U.S. ethanol production, this state-of-the-art terminal provides economical access to major fuel markets via the Iowa Northern Railway and its railroad connections. Since opening in December, the terminal’s four high-speed truck offloading bays have been jammed with semi-tankers offloading ethanol into the facility’s 3-million-gallon storage tank.
“We couldn’t build this terminal fast enough,” says Lee Kiewiet, president of Manly Terminal. “We’re already running quite a few ethanol gallons through daily, and business just keeps growing.”
Manly Terminal is a beacon of hope for the industry, which faces the daunting task of building up its distribution system as it doubles production capacity. Ethanol production is expected to grow to about 9 billion gallons or larger in 2008 alone. Infra-structure needs will only climb as the nation pushes its production and use toward the goal of 36 billion gallons of ethanol by 2022.
“If we don’t want to be swimming in ethanol, we have to build up our infrastructure, starting with new terminals,” says Bob Reynolds, president of Downstream Alternatives Inc., a consulting firm specializing in fuel transportation logistics. “We need more facilities like Manly.”
Pressure building. Transportation is typically the third-highest expense ethanol producers face, after feedstock and energy, according to a USDA report on ethanol transportation released last September. Unit trains (85 to 100 cars) are becoming the preferred mode of ethanol transportation, as freight costs for a unit train can be one-fourth as costly as a single-car shipment, the report says.
It’s a given, then, that many ethanol plants will need to be upgraded to handle unit trains. However, Reynolds says he’s more worried about the receiving end, because few gasoline terminals are set up for accepting unit trains
of ethanol.
About 85% of the nation’s 400 to 500 gasoline terminals that blend ethanol are not equipped to take in any rail car, much less the unit trains preferred for moving large volumes of ethanol, Reynolds says.
Storage shortage. What’s more, most ethanol plants coming online do not have liquid storage that could ease pressure from slow rail car turnarounds, he adds. Currently, the entire industry only has a 21-day reserve of operating inventory: 25% to 30% at any one time at ethanol plants, 25% to 30% in transit and 50% at the terminals.
Yet in three years, annual ethanol production is expected to be 5 billion gallons higher, pouring an additional 287.7 million gallons of working inventory (21 days’ worth of the 5 billion gallons) into the ethanol logistics system at any one time, Reynolds figures.
“In less than 36 months we’re going to have new ethanol production, and terminals won’t be ready,” he adds. “Supplies and skilled labor to build terminals are in short supply.”
The newly opened Manly Terminal should help alleviate some pressure building in the ethanol distribution system. The unique facility is owned by three partners: Iowa Northern Railway, Kiewiet Group Companies and KAG Ethanol Logistics, which provide the truck transportation from pickup to final destination.
“Manly provides sufficient storage for ethanol producers and marketers to consolidate volumes to capitalize on price fluctuations, contributing to improved margins,” Kiewiet says. The terminal should cut 1¢/gal. to 5¢/gal. from producers’ costs.
Although 75% of ethanol moves by rail, biofuels are only a small part of overall rail freight, says Paul Hammes, vice president and general manager of agricultural products in the marketing and sales department at Union Pacific (UP) Railroad. Energy as a whole makes up 20% of UP rail capacity through 23 states, and ethanol constitutes only 1% of overall volume.
But ethanol movement by rail is seeing significant growth. UP expects volume to be up 35% this year, Hammes says. Carloads of ethanol are expected to increase across all rail lines by 30%, according to the Association of American Railroads.
Railroad capacity for ethanol is being pinched by increased traffic from other commodities, including coal and grain. The more than 100 new ethanol facilities on the railroads must vie with other traffic for time slots for train crews, power and cars on the line.
Needs. Also, continual upgrades are needed for rail bridges, tunnels and tracks, most of which were constructed during the early 1900s. In the years ahead, without significant rail improvements, the industry could end up with major ethanol congestion, Hammes says.
“Right now we have a huge gap between capital and capacity,” he says. About $138 billion must be invested to expand the nation’s freight rail infrastructure over the next 30 years to meet future demand, according to the National Rail Freight Infrastructure Capacity and Investment Study released in September.
For their part in increasing ethanol movement, Hammes says the railroads are working to expand use of unit trains, improve scheduling and forecasting and establishing a new tank car pool for ethanol.
“Without any public funding, railroads are at the top of all industries in terms of capital expenditures,” Hammes says. “We just need to keep investing at a strong pace to keep up with ethanol market demands.”
To contact Jeanne Bernick, e-mail jbernick@farmjournal.com.
Top Producer, Spring 2008
