Meeting the Infrastructure Challenges with the Expansion of the Biofuels Industry U.S. Chamber of Co

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Meeting the Infrastructure Challenges with the
Expansion of the Biofuels IndustryU.S. Chamber
of CommerceWashington, D.C.
September 27, 2007

• Paul Hammes VP GM Agricultural Products

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Infrastructure Challenges in Biofuels

• Union Pacific Overview
• Do We Have A Rail Capacity Issue?
• What Are The Capacity Challenges?
• What is Being Done To Address The Challenges?

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Union Pacific System
Seattle
Eastport
Portland
Duluth
Twin Cities
Chicago
Omaha
SLC
Oakland
KC
Denver
St. Louis
LA
Memphis
Dallas
Calexico
Nogales
El Paso
New Orleans
Houston
Eagle Pass
Laredo
Brownsville
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Major Freight Growth Projected(All Modes)
DOT
AASHTO
ATA
AASHTO American Association of State Highway
Transportation Officials
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Rail Shipments and Capital Needs Will Grow

• U.S. DOT projects that rail tonnage will grow by
  1.3 billion tons, or 55, by 2020.
• AASHTO projects that rail infrastructure needs
  will be between 195 and 225 billion over the
  next 20 years.
• AASHTO also projects that freight railroads will
  only be able to generate 142 billion on their
  own.

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Available Rail Network Capacity Is Declining
Millions of Class I Ton-Miles Per Mile of Road
Owned
Source AAR
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Railroad Freight Volume Trend
Weekly Carloads Intermodal Units (000s)
1/2003 11/2006
Excludes U.S. operations of Canadian railroads.
Source AAR Weekly Railroad Traffic
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Market Growth TrendClass I Railroads Carload
Volume
Overall CAGR3.8
Intermodal CAGR6.2
CoalCAGR5.5
Carloads (000)
Carloads (000)
Source AAR
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Market Growth TrendClass I Grain, Grain Mill
Products, Ethanol
2007-2008 Estimates based on assumptions from
current market conditions
Ethanol carloads were estimated using total US
ethanol production (60 for 2003-2005 65 for
2006 75 for 2007-2008)
Source AAR RFA
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Railroad Capacity InfrastructureChallenges

• Capital Constraints
• Solutions becoming more expensive
• Threat to growth and service quality
• Biofuels specific challenges
• Destination terminals
• Plant infrastructure
• Yard and terminal capacity

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Freight Railroads are Most Capital Intensive
IndustryAvg. Capital Expenditures As of Revenue
Petro Coal Prod
Avg All Mfg
Computers
Chemicals
Wood Prod
Motor Vehicle
Non-Met Min
Paper
Plastics
Food
Source U.S. Census Bureau EEI, AAR (1996-2005)
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Cots of Adding Capacity More ExpensiveThe Step
Function
Cumulative Cost of Capacity
- Triple Track
- Full Double Track - Add CTC crossovers
- Add Sidings - Reduce siding spacing - Upgrade
Signal system
Construct 3rd MT
Construct 2nd MT
1
10
20
30
40
50
60
70
80
90
100
110
120
130
140
Trains per Day
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Threat to Growth and Service QualityRe-Regulatio
n

• Re-Regulation Would
• Cripple Efforts To Achieve Re-investability
• Derail Capital Investment
• End Capacity Expansion
• Reduce Growth

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Biofuels Need for Development of Destination
Terminals
U.S. Ethanol Biorefinery Locations
Providence, RI
Albany
Northern CA/ Stockton
Linden, NJ
Sewaren, NJ
Baltimore, MD
St. Louis/ Sauget
Southern CA
Arlington
Bartow
Ft. Lauderdale
Current Destination Terminals (5)
Proposed Destination Terminal (6)
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Guidelines for Rail Service to New Industry
LocationsInfrastructure Guidelines
Locomotive (RCL) application.
NOTE Meeting the Infrastructure Guidelines may
not guarantee service will be provided.
September 14, 2006
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Addressing The Infrastructure Challenges

• Industry Capital Investment
• Union Pacific Capital Investment
• Legislation
• Efficiency Initiatives

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Capital Investment TrendsRail Industry UP
Prepared to Invest Record Amounts
42B
16B
p preliminary e - AAR estimate
Source AAR
UP Includes Cash Capital and Lease Financings
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Ethanol Infrastructure on UP
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Northern Region 2006 Ethanol Projects

• Complete Mankato yard buildout comp. 6/30/06

• Construct new siding at St. James 12/15/06

Minneapolis- St. Paul

• Construct a five track yard support off Elk
  Creek Siding for Worthington 12/15/07

Altoona

• Complete Phase II of Mason Blue Ribbon tracks
  12/31/06

St. James
Wyeville
Sheboygan
Bricelyn
Adams

• Sioux City Yard Expansion 12/31/06

Worthington
Clyman Jct.
Mason City
Milwaukee
LeMars
Eagle Grove
Kenosha
Sioux City

• Upgrader Tracks connect Mason City Sub to
  Fairmont Sub 2/11/06

• Complete Eagle Grove Yard Expansion 4/30/06

Chicago
So.Nevada

• Complete Iowa Falls expansion 4/30/06

Grand Jct.
East Ames
DesMoines

• Construct new siding and 3 track yard of the
  Tara Sub at Moorland 12/1/06

• Ft. Dodge Bride upgrade to 263K 6/1/07

Capacity Infrastructure Planning
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2007 Proposed Nebraska Ethanol Projects

• Columbus - Expand Yard

• Separate NCRC Wye From Mainline
• Extend Long Tracks
• Separate Switching Lead
• Expand Yard

Le Mars
Sioux City
S. Morrill
Columbus
North Platte
Mo. Valley
Council Bluffs
Grand Island
Speer
Lincoln
Gibbon Jct.
Marysville

• Yard Expansion Level/Hastings

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Destination Development - Ethanol Trains

• Current
• Arlington, TX (DFW Sub)
• 80 car unit unloading capacity
• Albany, NY (CSXT)
• 75 car unloading capacity
• Sewaren, NJ (NS, CSXT)
• 80 car unloading capacity-Expansion to 100
• Linden, NJ (NY Harbor, NS/CSXT)
• 80 car unloading capacity
• Proposed
• Southern, CA (2008)
• 80-100 car unloading capacity
• Northern/Stockton, CA (2008)
• 100 car unit unloading capacity
• Sauget/St. Louis(2008)
• 100 car unloading capacity
• Texas City, TX (Spring 2008)
• 100 car unloading capacity
• Baltimore, MD (Summer 2007) CSXT

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Oppose Legislation to Re-Regulate Rail Industry

• Whats Wrong with Reregulation Like S. 919/ H.R.
  2047?
• Focus on rail-to-rail competition wrongly ignores
  other competitive forces.
• Lowers rail rates and, therefore, rail revenue by
  government fiat.
• Dooms railroads to perpetual capital starvation
  and capacity shortfalls.

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Implement Efficiency Initiatives

• Expand Use of Unit Trains
• Develop Unit Train Destination Terminals
• Improve Scheduling and Supply Chain Management
• Forecasting
• Inventory Management PETE
• Tank Car Pool
• Terminal Space

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Conclusion

• U.S. Needs More Investment in Railroads to Meet
  Growing Demand
• Higher Returns on Investment Are Encouraging
  Railroads to Invest in More Capacity
• Industry Is Investing in Infrastructure at Record
  Levels
• Government Actions That Impair Railroad Earnings
  Will Restrict Future Rail Capacity
• Opportunities for Efficiency Gains Exist