The west side of Chicago holds the answer to why a power plant in Michigan is short of coal and a biodiesel maker in Brewster, Minn., can’t get enough grain.
Near Western Avenue, rail cars from Archer-Daniels-Midland Co., the largest U.S. publicly traded ethanol producer, rest idle on the track above the Dwight D. Eisenhower Expressway. A short drive away a burnt orange, yellow and black locomotive from Warren Buffett’s BNSF railway sits on an overpass as motor traffic is snarled below.
They can’t move because increasing oil production from North Dakota’s Bakken field, a record grain crop and unprecedented cold weather overwhelmed the U.S. railroad system. In part because of transport delays, coal inventories were down 26 percent in January from a year ago. One fourth of all U.S. freight rail traffic passes through Chicago - about 37,500 rail cars each day. The trip through the city can take more than 30 hours.
“Utilities are having a tough time getting the coal that they already purchased,” Ted O’Brien, vice president at Doyle Trading Consultants LLC, a Grand Junction, Colorado-based coal analytics company, said on March 14. “It would be a feeding frenzy if they had the transportation to get it.”
Transport snarls are one reason coal on the New York Mercantile Exchange has risen 5.5 percent in the past year to $60.48 a ton as of Thursday. Wyoming’s Powder River Basin coal has jumped 26 percent to $13.05 a ton. Power-plant demand for the fuel is forecast to increase 4.9 percent to the highest level since 2011. Utilities had about 132 million tons of coal in inventory in January, the lowest since 2006, according to data from the U.S. Department of Energy.
Coal producers, including the Western Coal Traffic League, whose members are shippers of coal mined west of the Mississippi River, point at inconsistent rail service as the primary culprit and railroads put the blame on Chicago.
The group asked March 24 that the U.S. Surface Transportation Board institute a proceeding to address BNSF’s coal service in the region.
BNSF said in a response to the agency that it plans to spend $5 billion this year on service.
“As these resources come on line, service will gradually improve,” it said in a March 25 letter.
The railroad will need the rest of this year to untangle the train tie-ups in the corridor that serves the Bakken field, BNSF Chief Executive Officer Carl Ice said April 2. He said the line deployed 300 additional crew members to its northern region and plans to add 500 locomotives and 5,000 rail cars to ease the congestion.
The tie-ups at BNSF will be worked out in time to handle the next harvest, and it plans to increase velocity through Chicago, Robert Lease, vice president for service design and performance, said at a Surface Transportation Board hearing on rail service Thursday in Washington.
Jeff Wallace, vice president of fuel services at Southern Co. in Atlanta, told the board March 6 that he surveyed 13 utilities and they said rail service has struggled to respond to demand and that some are running out of coal.
Midwest Energy Resources Company, a subsidiary of DTE Energy Co., that is responsible for feeding coal to the utility’s power plants in Michigan, has had problems getting rail deliveries from the Powder River Basin, Robert Sarvela, the company’s director of transportation and marketing, said Thursday.
Other commodity producers have voiced similar concerns. Ethanol futures last month reached $3.517 a gallon on the Chicago Board of Trade, the highest level in more than seven years.
“There’s collective sentiment about inefficient turnaround times on rail cars,” said Mark Ruyack, a manager at Star Fuels Inc., a Jupiter, Florida based alternative energy broker.
Minnesota Soybean Processors, a biodiesel company, said that rail service has been so inconsistent that it has had to trim operations in Brewster.
“We’re two to three weeks behind,” said Taryl Enderson, the plant’s general manager.
Grain handlers say their business is a casualty of the shale boom. As horizontal drilling and hydraulic fracturing made the United States the world’s biggest shale oil producer, shipments by rail grew 74 percent in 2013 from 2012, American Association of Railroads data show.
Dwell times, a measure of how long loaded railroad cars sit in a rail yard, averaged about 26 hours during the first quarter, up from 21 hours during the same period in 2013, railroad association data show.
Trains are getting mired in Chicago’s tangle of bottlenecks, said Charles Clowdis, an IHS Global Insight analyst in Lexington, Mass ..
“A lot of interchange points, like Chicago, are still a mess,” he said in an interview on March 25. “Coal has come back because of the cold winter, oil by tanker is relatively new. Now all of a sudden you have all these tank cars pulling crude oil and you just can’t get cars.” Information for this article was contributed by Thomas Black and Noah Buhayar of Bloomberg News.
Business, Pages 31 on 04/12/2014