Rail-to-Truck Ethanol Terminals

Large rail terminals that can handle ethanol unit trains are poised to be an integral part of transporting the fuel in the future. The ability to quickly and inexpensively move ethanol long distances becomes more important as our renewable fuel consumption increases. Several companies have recognized this opportunity and are adding ethanol capacity.
By Erin Voegele | September 08, 2008
The ability to economically and efficiently ship ethanol long distances is expected to be the key element in the successful implementation of the renewable fuels standard (RFS) created by the Energy Independence & Security Act of 2007. The RFS calls for ethanol consumption to increase from 9 billion gallons this year to 36 billion gallons in 2022. At those levels, consumption must increase approximately 400 percent in less than 15 years.

Much of that ethanol will likely continue to be produced in the Midwest, with the heaviest demand remaining concentrated along the East and West coasts. Proper transportation infrastructure will be crucial to delivering ethanol to these markets outside the Midwest. A significant portion of this transportation will likely take place by rail. However, railcars and tracks aren't the only infrastructure needed for rail transportation. Ethanol transloading terminals at both the destination markets and point of origin are essential to providing quick, efficient and economic rail transportation. As ethanol shipments continue to increase, large terminals capable of handling unit trains are expected to be a necessary component to effectively serve key markets.

According to John Schmitter, a rail transportation consultant who is involved in the biofuels industry, approximately 70 percent of U.S. ethanol production is currently shipped by rail. This level is expected to remain relatively stable as the industry moves forward. Although, there has been some concern over the railroad's future capacity, and its ability to handle increased ethanol shipments, Schmitter says it is important to put the amount of projected ethanol shipments into perspective. Even as ethanol production and shipments continue to increase, ethanol will barely constitute 1 percent of total rail volume, and railroads will have plenty of capacity to handle that.

However, rail capacity is only one element of efficient rail transportation. The ability to ship unit trains of ethanol, as opposed to single manifest cars, is important to ensuring quick and affordable ethanol shipments. Robert White, the Ethanol Promotion and Information Council's deputy director, explains the importance of large ethanol transloading terminals. "The continued involvement of those larger facilities that can handle multiple cars—or, in fact, a unit train—will ultimately lower [freight prices] because the more people who have to touch the fuel—the more times it has to be touched—the more money will be spent on freight," White says. Every penny saved on shipping is a penny that can be passed on to the consumer in the form of lower prices. Transportation will continue to be an important aspect of consumer acceptance because of its impact on the price at the pump, he says.

Although no comprehensive list of current ethanol rail terminals is known to exist, Schmitter says that approximately nine U.S. rail terminals can currently handle a unit train of ethanol, with nearly eight more in various stages of planning and development.

Terminals in Operation
Safe Handling Inc., a bulk product transportation and toll processing company, operates two rail terminals. One is in Mount Pleasant, Pa., approximately 45 miles southeast of Pittsburgh. The other is in Auburn, Maine. Both terminals have the capacity to transload ethanol. "We are not handing unit trains," says Andy Meyer, Safe Handling's vice president of sustainability. "The market we are in doesn't need unit trains, so they are not unit-train terminals." Although Meyer doesn't classify the terminals as unit-train terminals, the Pennsylvania location can handle 145 railcars, while the Maine location has capacity for 210.

Each of Safe Handling's terminals can transload 180,000 gallons of fuel per day. The company is in the process of doubling the Pennsylvania terminal's capacity. "Pennsylvania has been a giant success for us," Meyer says. "We are scrambling to keep up with demand. We are in the process of doubling our capacity, and that is already sold out."

Meyer says the decision to handle ethanol was a natural extension of the company's business. Safe Handling already had the rail space, fire suppression, containment, trained staff and utilities. Although ethanol represents a relatively small portion of the products Safe Handling transloads, the company is expecting demand and shipments to grow. "It has been a great business for us," he says. "We are pleased with the business, and it has allowed us to create jobs."

Although Safe Handling's terminals do not offer barge access, Meyer says be believes most ethanol rail terminals currently handling unit trains of ethanol are located on marine terminals that can fill barges. He says that the markets served by Safe Handling's terminals don't require unit trains or barges of the product because people simply aren't using that much ethanol right now.

Several other companies are working to add ethanol capability to their terminals. U.S. Development Group LLC currently operates four rail terminals in Houston, Dallas/Fort Worth, Texas, Baltimore, and Linden, N.J. All four locations have the capability to transload unit trains of ethanol. According to Meg Martin, a U.S Development Group spokesperson, the company's experience handling ethanol has allowed their business to grow. The company expects to add additional ethanol capacity in the future.

Kinder Morgan Energy Products L.P., one of the nation's largest pipeline transporters and terminal operators, operates approximately 68 rail terminals. Currently, only one terminal has the capability to transload a unit train of ethanol. That terminal is in Lomita, Calif., and has been in operation for more than two years. According to John Mahon, Kinder Morgan's director of business development for renewable fuels, the company expects to add ethanol capacity to additional rail terminals in the future.

Alternatively, Iowa-based Manly Terminal LLC is serving the producer, Midwest-based side of the market. Located within 300 miles of where 50 percent of our nation's ethanol is currently produced, and within 100 miles of a billion gallons of annual production, Manly Terminal is positioning itself to be an integral element of outgoing ethanol shipments. Although the terminal's primary business currently is single manifest cars, the company expects unit-train shipments of ethanol to increase in the future.

"We have the capability to build unit trains with multiple customers' cars in that unit," says Lee Kiewiet, Manly Terminal's president. This can be highly beneficial to smaller producers. By consolidating the volumes of several small producers into one unit-train shipment, those producers can often get a much better price on logistics and car turns.

The company is in the process of launching a trading platform that will allow Manly Terminal users to buy and sell ethanol in order to complete unit-train shipments. For example, if a producer needs 20 cars to fill out a unit train, that producer can place a bid on the gallons needed to fill out the unit. "We believe that with the addition of this trading floor, it is really going to increase our flows," Kiewiet says.

Moving Ahead
Although railroads will be able to accommodate increased ethanol shipments in the future, overall rail capacity will be constrained, Schmitter says. Ethanol shippers will have all the capacity they are willing to pay for as railroads are private businesses that have the ultimate mandate of making money. "Ethanol is good business for them, and as long as it remains so, they'll handle it," Schmitter says.

As White notes, the opening of ethanol rail terminals obviously provides more opportunity, but doesn't necessarily translate into increased ethanol usage; at least not immediately. "I think that as we move forward and more product becomes available … we will need those high-volume opportunities to unload at fuel destinations," White says. "For products we are involved with, especially on market development, where we are looking not only at E85, but also midlevel blends between E10 and E85, we need to have that volume and we need to have it at an economic price."

While investments in infrastructure such as ethanol rail terminals may not be imperative to serving most of today's markets, those in the transportation industry seem to be recognizing the potential need for these types of facilities. Having the proper infrastructure in place is a precondition to increased ethanol usage in the future. These facilities become even more important as ethanol use increases due to the RFS—and the likelihood that a midlevel blend will be approved—and should help regional markets adapt and ensure that producers have a ready market for ethanol products.

Erin Voegele is an Ethanol Producer Magazine staff writer. Reach her at [email protected] or (701) 373-8040.