(Reuters circulated the following article by Nick Carey and Edgar Ang on April 24.)
CHICAGO/NEW YORK — Electric utilities are worried they might not be able to obtain enough coal this summer to power the country’s air conditioners if railroads have to scramble to untangle the logistics of oil refineries making the switch to a cleaner gasoline additive.
“With the peak summer season for electricity approaching and rail deliveries of coal still not where we would like them to be, we are monitoring this situation carefully,” said Jim Owen, a spokesman for the Edison Electric Institute, a trade association representing shareholder-owned electric companies.
“Obviously there is some concern over this issue,” he added.
There have been warnings of localized shortages of gasoline this summer. There are no guarantees of a plentiful supply of the fuel ethanol that refiners need to replace MTBE, which is being phased out because it can pollute groundwater.
Energy Secretary Sam Bodman told Reuters this month that “most of the fuel ethanol produced in the United States comes from the Midwest,” and is made from locally grown corn, which could lead to shortages in areas “farthest from the source.”
Refineries in the U.S. Northeast are among those expected to face shortages.
The switch to fuel ethanol during the busy summer driving season will dovetail with rising use of air conditioning. Electric utilities powering air conditioners rely on coal, especially from the coal-rich Powder River Basin in Wyoming.
Derailments in 2005 on lines out of that basin operated by Union Pacific Corp.
“The railroads have worked to boost supplies, but we are still not getting the (Powder River Basin) deliveries we need,” said Melissa McHenry, a spokeswoman for American Electric Power Co Inc. (AEP)
“Supply is tight as it is anyway, without any additional problems,” she added.
The coal coming east and the fuel ethanol will use some of the same sections of rail network.
“The ethanol shippers are already competing with the coal, grain and coke shippers for very limited rail time. The demand is far greater than the supply,” said a refiner in the Northeast. The refiner, who asked not to be named, added that the problem “will be more prominent in (the) summer.”
Ethanol corrodes pipeline joints, so many refiners must rely on trains for their supplies.
“Some terminals will have more problems getting the ethanol supply because they don’t have rail access,” the refiner said.
Terminals in Albany, New York are near the rail system, so they will get a steady ethanol supply. But terminals in Baltimore must rely on trucks, which may lead to highway congestion and shortages.
The railroads have given mixed signals about whether they can meet the demands of both the utilities and the refineries.
Jim Young, chief executive of Union Pacific, said the largest U.S. railroad is “going to be stretched,” and that balancing demand will depend partly on financial returns. U.S. railroads have benefited from price increases as capacity has tightened, with more price rises likely this year and next.
Michael Ward, chief executive of CSX Corp.
AEP and other utilities are retrofitting power plants with filters that burn higher sulfur coal to reduce reliance on Powder River Basin coal, which is relatively cheap and low in sulfur. AEP’s McHenry said the company will complete the retrofits in 2010 and then will be able to use more coal from the eastern United States.
“For now this tight capacity remains an issue and we are monitoring the situation closely,” McHenry said.