BioFuels Journal

Rising Ethanol Production Could Be Hindered by Transportation Infrastructure

This article is taken from the June 14 USDA Grain Transportation Report.

U.S. ethanol production capacity is rising rapidly.

Fortunately, to date, logistical concerns have not hampered this growth.

However, several transportation factors that deserve attention include: >Uncertainty about location of terminal markets and demand quantities at those locations.

>Rail and barge infrastructure.

>Truck equipment and driver availability.

According to the Renewable Fuels Association, annual ethanol production capacity at 120 ethanol plants as of May 22, 2007, reached 6.2 billion gallons, 27 percent higher than the 2006 ethanol production.

In the first three months of 2007, the ethanol industry produced 1.4 billion gallons, 28 percent higher than during the same period last year.

Additional capacity is estimated to grow by about 1 billion gallons per quarter, doubling ethanol annual production capacity to 12.6 billion gallons in the next 12-18 months.

The ability of the distribution network to develop in tandem may have an impact on the pace of ethanol production expansion.

Railroads Concerned about Terminal Market Infrastructure.

Ethanol is currently transported by rail, barge, and truck.

When ethanol production approaches 12.6 billion gallons, demand for rail services will reach about 245,000 total ethanol carloads per year, almost three times higher than in 2005, but well below the 1.2 million grain carloads and 20.8 million total carloads in 2006.

The main concern voiced by the railroads is the ability to move the increased ethanol traffic efficiently.

It is more cost effective for the railroads to move unit trains— consisting of about 95 cars and moving from one origin to one destination.

Locations capable of accepting unit trains of ethanol currently include Watson, CA, Ft. Worth, TX, Chicago, IL, Albany, NY, Providence, RI, Sewaren and Linden, NJ, and Baltimore, MD. New terminal market facilities under construction are in Manly, IA, and St. Louis, MO.

Due to the efficiency of the unit trains, the pricing structure also varies.

For example, BNSF tariff rates for unit trains can be as much as $1,200 less per car than single car movements.

Tank Truck and Barge Sectors also have Concerns.

Tank trucks that typically transport petroleum products now have to adjust to the rapidly growing ethanol business.

Driver and equipment shortages may leave some areas lacking trucking services.

The barge industry is increasing the tank barge fleet; however, the volume of ethanol production is not located near the Mississippi River waterways.

Grain Transportation Dynamics Are Affected Too.

About 97 percent of U.S. ethanol is produced from corn.

The corn market has already experienced some of the ethanol impact.

Corn prices almost doubled in one year, pulling more acres into corn production for the 2007/08 marketing year.

Corn is increasingly being trucked to local ethanol plants, as rail carloads of corn to distant markets (export and feedlots) have been decreasing.

Corn basis have been rising in the past several weeks as export and ethanol demand compete for old crop corn.

For more information, contact Marina Denicoff (see below).