US RFA raises alarm as oil railcar shipments crowd out ethanol

HOUSTON (ICIS)–US ethanol producers want rail carriers and authorities to take action as rising crude oil railcar shipments crowd out ethanol, contributing to “sheer chaos” on the country’s freight rail system, an industry group said on Friday.

However, railroads were quick to reject the claims made by the Renewable Fuels Association (RFA), which represent US ethanol producers.

Ethanol cannot be easily pipelined. The industry therefore relies heavily on rail as a “virtual pipeline” to bring its product to market.

The RFA said that “explosive growth” in railcar shipments of Bakken crude from North Dakota and of Canadian crude has “reshuffled the existing fleet of railcars and locomotives, pressured lease rates, changed normal rail traffic patterns, and generally exerted significant stress on the rail system”.

The resulting “disarray on the rail system” forced ethanol firms to curtail production, with onsite storage tanks “brimming full”.

As a result, ethanol stocks in key regions have been depleted while ethanol and gasoline prices have increased, the RFA said in a letter to the American Association of Railroads (AAR) and in testimony to the US Surface Transportation Board this week.

The group acknowledged that recent harsh winter weather was a factor in the rail service problems. However, “winter comes every year”, and thus the sharp rise in crude oil shipments was a “more plausible explanation for the severity of the current epidemic” on the rail system, it said.

The RFA urged the rail industry to examine the role growing crude oil shipments play in rail service problems, and it wants to know what steps are being taken in the short term by the rail industry to address the logjam in the system, it said.

The group added that the ethanol industry will continue to be a loyal customer for the railroads, while crude shipments by rail “likely will go bust just as quickly as they went boom” as pipelines are being developed to move crude oil out of the Bakken region and Canada.

The AAR acknowledged “recent rail service challenges in certain parts of the country”, but it insisted that harsh winter weather, a record grain harvest, high grain exports, and higher coal shipments were the causes.

Contrary to RFA’s claim, the 2013/2014 winter was far worse than usual, forcing railroads to “dramatically shorten train lengths and crew exposure to the elements,” the AAR said in a statement to ICIS.

“RFA’s claim that the rail system is in ‘sheer chaos’ is preposterous and unhelpful,” the AAR added.

In fact, despite regional service problems, US railroads in March 2014 originated nearly 39,000 more carloads and nearly 93,000 more containers and trailers than in March 2013, the group said. Chemical carloads – which include ethanol – were at their highest level in 23 months in March, it said.

Meanwhile, railroads were working around the clock to address any issues, it added.

US crude oil railcar shipments increased from around 9,500 carloads in 2008 to more than 400,000 carloads in 2013, and they continue to rise this year.

For the first 14 weeks of 2014 ended 5 April, oil railcar shipments were up 7.3% year on year to 201,744 carloads, according to the AAR’s latest rail traffic report this week. Chemical railcar loadings were up 0.8% year on year to 421,822 for the first 14 weeks.

Additional reporting by Jeremy Pafford and Bobbie Clark