Immovable Objects: Railroad Delays ...

by Matt Thompson (Ethanol Producer Magazine) Railroad delays in 2014 forced ethanol plants to slow production or find other ways to move their products. Four years later, the situation has improved, but rail traffic is on the rise again.

In late 2013 and through much of 2014, ethanol shipments were stymied as harsh winter weather, heavier-than-expected rail traffic from the agriculture and crude oil industries, and a limited supply of tanker and hopper cars all combined to create substantial railroad delays.

“Ethanol producers, as well as many other businesses, depend on railroads for anywhere from a small percentage to near 100 percent of their transportation requirements,” says Brad Schultz, director of commodities and risk management for Glacial Lakes Energy LLC. “And when conditions mean service goes down, you have problems doing business that can maybe add up to just headaches, but potentially lost business and lost opportunity.”

These improvements came despite a resurgence of oil production from the Bakken shale formation in western North Dakota, as well as an increase in production out of the Permian Basin in Texas. In July of this year, production in North Dakota was averaging more than 1.2 million barrels per day. The Permian Basin produced more than 2 million barrels per day from January through July of 2018. Although oil production is once again increasing, and demand on the rail system continues to be steady, neither Hausvik (Donna Hausvik, chief marketing officer for Redfield) nor Broderick (Sean Broderick, distillers grains marketing manager for CHS Inc.) have been made aware of any issues that could impact rail shipments soon.

“I think that, just based on what we’ve heard, [the railroads] are able to see the Bakken rise on the future, and as far as I can tell, they’ve been gearing up for it,” Broderick says.

“What they’re telling us is, ‘Yep, it was up last year and it’s up another six percent this year,’” Hausvik says. She adds that, according to Eco-Energy, the main reason rail traffic is increasing is the nationwide truck driver shortage.

For Redfield, rail service began to return to normal after it sought assistance from Sen. John Thune, R-S.D., Hausvik says. “We started corresponding with his office, and he was sitting on the STB at that time, which really helped.” After that, BNSF utilized locomotives that had been in storage and sought assistance from other railroads.

Broderick, Schultz and Hausvik all note that communication from the railroads has improved as well. “It does seem like the railroad is cognizant of the fact that you need information to run your business, and they seem to do a lot better job of providing that than they did,” Broderick says.

After 2014, both Redfield and Glacial Lakes undertook projects to help ease the burden of potential rail service delays. Hausvik says Redfield increased on-site ethanol storage by adding two 1 million-gallon storage tanks, nearly doubling its storage capacity.

In 2014, Redfield also trucked some of its product to a storage facility in southern South Dakota, Hausvik says. If service were to slow down again, moving product by truck would be more challenging. She says it’s been harder to find trucking companies recently than it was in 2014, because of the nationwide driver shortage and stricter trucking industry regulations.

Schultz says Glacial Lakes also added more on-site storage at its Watertown plant. But it also went a step further. “We did convert the Watertown plant, which at the time was single manifest, to a unit shipper. It was fully operational February of 2017. Along with becoming unit capable, we added 4.5 million gallons of ethanol storage as part of the same project.”

While rail service has improved, Hausvik notes that it has come with a cost, and she expects that cost will continue to rise. She says Redfield is a single manifest facility and has seen two rate increases from BNSF this year, amounting to about 2 cents per gallon for ethanol. Typically, the yearly increase is $100 per car, per year, at the most, she says. This year, both increases were $300 per car. “They’re seeing more ethanol volume on the rail line than ever before and they believe they can continue to take the rates higher,” Hausvik says. READ MORE