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Ethanol shippers avoiding Chicago bottleneck to supply low-stocked East Coast

Highlights

US railroads are rerouting ethanol shipments to avoid bottlenecks inChicago, particularly for delivery to the East Coast, where supplies arerunning low, rail company officials said Thursday.

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David Garin, BNSF's vice president of industrial products, said Chicago-- already congested as the US' busiest freight rail hub -- has been severelyimpacted by winter weather, leading to delays on routes using interchangesthere for all commodities.

Though BNSF does not serve East Coast markets, Garin was speaking at ameeting of the US Surface Transportation Board's Rail Energy TransportationAdvisory Committee as a representative of the rail industry.

"Chicago is a big challenge for us," Garin said. "We've looked at longerrouting. It may not seem to make sense to [ship ethanol on rail] throughArkansas to the East Coast, but right now where we're trying to avoidinterchanges in Chicago."

Ethanol inventories at New York Harbor are at less than a week's supplydue to delayed deliveries, causing ethanol there to trade at a 95-cent premiumto Chicago, said Mark Huston, director of North America Transportation atLouis Dreyfus Commodities. The typical benchmark for ethanol stocks is 21days, he added.

East Coast stocks for the week ended February 28 stood at 4.859 millionbarrels, about a third lower than they were a year ago, US Energy InformationAdministration data showed.

Meanwhile, Midwest ethanol plants are having to shut in productionbecause of a lack of tank car availability caused by rail delays, Huston saidat the meeting.

"We have plants running at 75-80% because they can't get rid of theethanol," he said.

Brad Hildebrand, global rail and barge lead at ethanol maker Cargill,said that with East Coast ethanol stocks so low, his company is consideringimporting ethanol from Brazil to make up for the lack of supply to customers.

About 70% of Cargill's production from its ethanol plants is transportedby rail, he said.

"There's lots of concern about ethanol, getting it to the East Coast,"Hildebrand said. "We're literally running on vapors at this time."

Beth Whited, vice president of chemicals with Union Pacific, said that inaddition to rerouting shipments to avoid Chicago, railroads are"over-resourcing" by hiring additional crews and putting more locomotives intoservice to alleviate delays.

"There's a significant backlog that wants to go through Chicago that weare rerouting," she said. "There's a significant focus on understanding whatthe supplies are and what the priorities are for customers, to try to keepstocks up."

Garin added that as winter passes, rail delays for all types of shipmentswill hopefully be alleviated.

"As the weather improves, we expect steady service performanceimprovement," Garin said.

--Herman Wang, herman.wang@platts.com--Edited by Annie Siebert, ann.siebert@platts.com