Possible rail strike could send shockwaves through energy industry

A strike by U.S. railroad workers could have dramatic impacts on energy delivery, with industry groups warning of logistical snarls and price increases for consumers.

The potential strike — which Congress and President Biden are scrambling to avert — would predominantly affect commodities that can’t be transported by pipelines, such as coal and ethanol. 

A number of energy trade groups have vocally lobbied for Congress to step in, warning that a strike could be devastating to their industries. 

“Our country’s ethanol producers rely greatly on the railroads to move their products to market, and if the nation’s trains stop running, the nation’s ethanol biorefineries stop running too,” Renewable Fuels Association (RFA) President and CEO Geoff Cooper said in a statement Monday. “We need a resolution quickly so the 400,000-plus jobs supported by our nation’s ethanol industry, and the rural economy itself, will not suffer the dire consequences of an interruption in rail service.” 

More than 95 percent of domestic ethanol supply is manufactured in the Midwest, requiring rail transport to heavy-use states like Texas and California. 

More than 70 percent of ethanol produced in the U.S. is transported by rail, and in the last five years American railroads have transported an annual average of almost 395,000 carloads, according to data from the RFA. The ethanol plants themselves, meanwhile, rely on rail transport for about 25 percent of the grain used in production. 

“The biggest impact is actually on the delivery of ethanol to the terminal logistics and distribution system,” said Andy Lipow, the president of Lipow Oil Associates. “Because gasoline contains 10% ethanol in every gallon that is sold, it becomes an integral part of the supply chain without which supply shortages will develop.” 

Lipow said existing ethanol stockpiles contain enough that it’s possible a short strike could come and go without affecting consumers, putting the window at about 10 days. 

“However, as those delays progress and get extended … we find that the terminals will run out of ethanol and consequently will not be able to supply their customer demand for gasoline to be sold at the retail service station,” he added. 

Twelve unions representing railroad workers have spent nearly three years negotiating a new contract with rail carriers, with the members seeking sick leave, more flexibility in schedules and a raise. Union leaders agreed to a Biden administration-brokered deal earlier this year, but the rank and file of four of the unions have rejected it, and without a deal a strike could begin Dec. 9. 

“We don’t want to strike. We want what’s just,” Matt Weaver, the legislative director for Ohio for the Brotherhood of Maintenance of Way Employees, told CNN Tuesday. 

On Monday evening, Biden called for Congress to pass legislation overriding the union members’ objections and ratifying the tentative deal. Speaker Nancy Pelosi (D-Calif.) has said the House will take up the measure, and Senate Majority Leader Charles Schumer (D-N.Y.) said he and Senate Minority Leader Mitch McConnell (R-Ky.) “agreed to try to get it done ASAP.”

The National Mining Association (NMA) has also pushed for action to avert a strike, invoking both U.S. energy supplies and the ongoing war in Ukraine. 

“A rail strike could create a debilitating logistics chokepoint for the movement of energy and materials resources essential to our grid reliability and energy affordability, as well as our manufacturing sector and the energy security of our allies in Europe,” NMA President and CEO Rich Nolan said last week. 

The American Petroleum Institute (API) expressed alarm at the prospect of a strike, saying in a letter to House and Senate transportation committee leaders in September that “it is of critical importance to all sectors of the economy that these parties reach an amicable agreement and avoid any service disruption.” 

“A disruption has the potential to reach every aspect of the U.S. economy and could hamper U.S. gasoline supply, leading to upward pressure on producers for American consumers and businesses,” API President and CEO Mike Sommers said in a statement Tuesday. “We urge Congress to pass legislation to implement the agreements reached between railroad unions and railroads.” 

Marianne Kah, an adjunct senior research scholar and advisory board member at Columbia University’s Center on Global Energy Policy, told The Hill that “by far” the most drastic effect of a strike would be on the delivery of coal by rail. Data from the Association of American Railroads (AAR) indicates that trains hauled about 3.34 million carloads of coal in 2021, up from 3.03 million the previous year. About 70 percent of U.S. coal is transported by rail, according to the trade group. 

It would also have an outsized effect on the delivery of crude oil, Kah said. In years past, she noted, between 300,000 and 700,000 barrels of crude have moved by rail, she said, “which didn’t sound like a big number, but … prices are set on the margin, so it’s clearly had an impact on supply availability and prices.” 

Propane, which sees 200,000 to 300,000 barrels per day moved by rail, would also be affected, she added. 

“Except for coal, these numbers don’t sound large, but on the margins they impact prices,” she said. 

Meanwhile, Lipow said, the energy fallout wouldn’t just be limited to consumer products. 

Refineries manufacture a number of other byproducts that are then moved by rail, such as the sulfur removed from crude oil during the refining process. 

“If that sulfur is not removed by railcar, then ultimately, refiners would have to reduce their operations,” he said. Refiners also rely on rail to deliver chemicals used in the refining process, such as isobutane. 

It also comes at a point when winter temperatures threaten to disrupt much of the regional energy landscape already, Kah added.  

“I just hope we don’t see [a strike], because we’re having enough energy issues in the Northeast with the diesel shortage that we don’t we don’t need other things to happen,” she said.