E15 fuel waiver in US could add to escalating rail logistics issues

The planned emergency waiver from the White House to allow summertime sales of gasoline in the US to contain more ethanol could create additional logistical issues for a railroad industry that is already struggling to recover from the ongoing pandemic with a smaller workforce.

The vast majority of ethanol is moved from the Midwest to the various US coasts primarily by rail, and the fuel waiver comes at a time when the US Surface Transportation Board is calling out the railroad industry for recent service problems and for over-the-top job reductions.

The emergency waiver for E15 would permit summertime sales of gasoline to be blended with 15% ethanol -- instead of a typical maximum of 10% ethanol -- in another bid to lower domestic fuel prices contributing to sky-high inflation.

About 85% of US ethanol production -- roughly 650,000 b/d -- moves by rail, largely from PADD 2 in the Midwest to PADD 1, 3 and 5, said AJ O'Donnell, product team director for East Daley Capital.

"The balance of production is moved by truck or barge, with very little moving by pipeline," O'Donnell said. "So, if we were to see major logistical disruptions in ethanol by rail, trucking would be the likely candidate to pick up the slack."

O'Donnell said it is unlikely that pipeline operators would consider converting any existing pipelines to move ethanol.

The Surface Transportation Board already plans to hold a two-day public hearing beginning April 26 to address "recent rail service problems" moving energy and agricultural supplies throughout the country. The STB said that, in recent weeks, complaints have risen from a broad range of stakeholders about "inconsistent and unreliable rail service."

The STB is directing top rail operators BNSF, Union Pacific, CSX and Norfolk Southern to participate. Kansas City Southern, Canadian National Railway and Canadian Pacific Railway are invited as well.

STB Chairman Martin Oberman said that in recent years -- and exacerbated even more during the pandemic -- railroads have cuts costs and jobs to improve profits. He said the top US railroads have reduced their workforces by 29% -- the loss of 45,000 employees -- in the last six years.

"In my view, all of this has directly contributed to where we are today -- rail users experiencing serious deteriorations in rail service because, on too many parts of their networks, the railroads simply do not have a sufficient number of employees," Oberman said in a statement, noting that the STB will consider how it can use its authority to address emergencies and promote reliable service.

Limited ethanol consumption jump

The emergency E15 waiver is expected to lower fuel costs a bit, but maybe not by the White House's estimates that US drivers can save 10 cents/gal on E15 during the summer months. After all, the infrastructure for higher-ethanol blends remains limited to about 2,300 stations centered in the Midwest.

Corey Lavinsky, global manager of biofuels analytics at S&P Global Commodity Insights, forecasts that an additional 25 million-30 million gallons of ethanol -- a "relatively small" number -- will be consumed during the June 1 to Sept. 15 time period.

The US Renewable Fuels Association analyzed available data and concluded that 814 million gallons of E15 were sold in 2021, with an ethanol content of 122 million gallons, according to Lavinsky. Had those volumes been sold at E10, the ethanol content would have been 81 million gallons, so the additional ethanol sold was only 41 million gallons -- for the entire year, not just the summer.

The summertime sales ban impacts about 80% of existing E15 retail locations. It does not impede year-round E15 sales in reformulated gasoline markets, representing about 30% of the US gasoline market.

Earlier April 12, the US government reported that inflation surged 8.5% in the year ending in March, the highest in 40 years, with gasoline prices jumping 18.3% as global oil markets reacted to Russia's invasion of Ukraine.

In approving the summer E15 waiver, the Environmental Protection Agency plans to take action based on the "current circumstance, which is a fuel supply emergency," a senior administration official told reporters in an embargoed briefing April 11.