Exclusive: Kinder Morgan to expand Chicago ethanol center to dispel fears of price manipulation – sources

ORLANDO, Florida (Reuters) – Kinder Morgan Inc. will increase the loading capacity of its ethanol terminal in Chicago to address growers' concerns that the terminal's trade – a benchmark for global prices. ethanol – are vulnerable to manipulation, informed three people of the company's plans told Reuters.

Tens of thousands of barrels change hands every day on the hub, but many more barrels across the country depend on price. The ethanol trade in the Kinder Morgan Argo hub spot market is used in biofuel contracts across the country and is also included in international contracts.

The exchanges at the terminal have been the subject of close scrutiny after one of the world's largest commodity merchants, Archer Daniels Midland Co, has moved from its role as a buyer. typical late 2017 to that of a big seller, flooding the ethanol pricing center and helping to bring down the price. almost records.

Farmers are struggling with a loss of export markets due to the US trade war with China and mixed signals from the Trump administration regarding its support for national biofuel laws. Factories have completely shut down in recent months as ethanol prices in the US have dropped below $ 1.20 a gallon, the lowest in about 13 years.

Kinder Morgan told traders at an industry conference in Orlando, Florida last week that he planned to double at least the amount of ethanol barges that could load and unload on its two existing Argo docks and plans to allow a third petrochemical dock to also carry ethanol. Three informed sources of meetings told Reuters.

Kinder will also build a new storage tank of 50,000 barrels a day at its Stony Island site near Argo, the sources said. The location of Stony Island charges and discharges the trains to ethanol.

The additions could be ready before the end of the year, traders said.

Kinder Morgan spokeswoman Lexey Long said the company had declined to comment on the article.

The increase in take-home sales capacity will make it harder to increase stocks at the 1.3 million barrel storage center and lower prices, traders said.

"If you can send barrels faster than you can remove them, you can lower the price faster and longer. This will help level this out and level the playing field, "said an ethanol trader.

Currently, Argo can unload about 120 to 150 ethanol tank cars each week, or about 4 million gallons, and can load two barges, about 1.2 million gallons at a time. The train flows fairly easily into the terminal, with tank cars waiting outside Chicago before unloading, but bottlenecks at lower-speed docks significantly delay trade, traders say. .

In the past, Kinder Morgan had proposed increasing capacity, but wanted producers and trading houses to help finance it through long-term contracts.

Not this time, traders said.

"I think they know that people are upset and that they want to make sure to retain their customer base," said another trader.

ADM's strong sales prompted the first US ethanol producer, POET LLC, to ask CME Group Inc to change the way it awards a price to a key exchange contract based on Argo's spot market . Poet argued that the link with Argo made the trading contracts subject to manipulation as well as the spot market.

ADM declined to comment on its commercial activity but said in a statement that "its ethanol business practices are appropriate and in compliance with all laws and regulations".

The rival group ICE Exchange plans to offer an alternative to the CME product after talks with frustrated biofuel companies, Reuters reported.

Argus Media has met several traders earlier this month in Houston to gauge their interest in setting up a new cash benchmark comparable to that set by S & P Global Platts, sources told Reuters.

ADM can produce about 1.6 billion gallons of ethanol per year, about 10% of its capacity. Despite its massive production, it has often been a spot market buyer to supplement its long-term supply contracts or to support a market vision, dealers said.

The Illinois-based global commodity center, which is a major producer of ethanol, accounted for about 61% of the 9.5 million barrels sold on the Chicago hub between November and August of the year. last, according to the data analyzed by Reuters.

Last year, this figure exceeded 70% of sales, reported Reuters.

Previously, ADM had been a regular buyer: in September and October 2017, for example, ADM had purchased 810,000 barrels, or 32% of the total 2,495 million transactions made on the Chicago hub during this period, according to data.