Companies explore putting ethanol pipeline through US Midwest

Two US pipeline companies announced their plans to assess the feasibility of constructing an ethanol pipeline through the Midwest. If built, the pipeline would the first one totally dedicated to transporting ethanol in the US.
Oklahoma-based Magellan Midstream Partners and Pennsylvania-based Buckeye Partners have partnered to explore creating a 1,700-mile pipeline. The line would move ethanol from plants in Illinois, Iowa, Minnesota and South Dakota to major cities like Pittsburgh, Philadelphia and New York City. The project is estimated to cost more than $ 3 bn.

The American Coalition for Ethanol's 2007 report lists Illinois as the second largest producer of ethanol in the US, at 317 mm gallons per year. Corn grown in Illinois is used to produce 40 % of the ethanol consumed in the US, according to the Illinois Corn Growers Association.
Nearly one-third of all gasoline in the US already contains low levels of ethanol -- usually between 5.7 % and 10 %. The Illinois Corn Growers Association reports that 95 % of the gasoline sold in the Chicago area contains 10 % ethanol.

However, high levels of ethanol cannot be piped through existing gasoline lines without damaging them.
"There are hundreds of thousands of miles of pipelines in the United States. Most of the liquid pipelines will run a mix of fuels, they might run jet fuel for awhile, then they'd run gasoline for awhile, then they could run crude oil for awhile," Ted Huck, vice president of sales and marketing for Pennsylvania-based engineering firm MATCOR said.

However, once ethanol has been pushed through existing pipelines, they can't be shared with other refined products.
"In pipelines today, you can ship different materials through with plugs that separate the shipments. But with ethanol, because it absorbs water and that sort of thing, it's really difficult to use a non-dedicated pipeline," John Urbanchuk, the director of expert-resources firm LECG, said.
John Cusick, a research analyst at Oppenheimer & Co. emphasized: "It's a corrosive agent, so it breaks down the pipelines themselves when it mixes in. It can't physically be put into a pipeline because it would erode the pipeline away."

Magellan and Buckeye may be years away from construction, simply because not much is known about transporting ethanol through pipelines. Studies on the technical issues and economic impact of creating an ethanol pipeline are ongoing; no ethanol pipelines exist in the US, though Brazil is in the process of constructing one.
"With the recent increase in renewable fuel standards, there's a lot of ethanol and a lot of opportunities for these companies to transport the fuel, so many are looking at this, or at least hint that they are," Robert White, director of operations for the Omaha, Nebraska-based Ethanol Promotion and Information Council, said.

Cusick said Houston-based Kinder Morgan announced plans to test an ethanol pipeline in Florida this year.
"Obviously everybody thinks that there's going to be more ethanol produced... I think once either Kinder or Magellan or somebody will come up with a pipeline that actually works, you'd see more pipelines being built and that's how it would work out."

Changing the way ethanol is transported may have more of an effect on consumer pocketbooks than adopting alternate fuels or even falling oil prices.
"If you looked at something in Illinois or maybe Iowa, sending it to the East Coast by freight is anywhere between 16 and 18 cents a gallon. If you take into consideration a refined product travelling the same distance, it would probably be under a nickel. So if you could get ethanol from Illinois to the East Coast for twelve cents a gallon cheaper than you can today, obviously a lot would change in the world, and the interest in ethanol [would go up]," White said.
Urbanchuk agreed, "The cost of shipping ethanol would be about the same as it is to ship gasoline through a pipeline."

Ethanol is mostly moved now by rail and trucks, which are costly and time-consuming methods of transportation. While a pipeline should help in the cost of distributing ethanol -- and presumably in the cost of consuming it -- it could also take away jobs from the rail and trucking industry, particularly in the Midwest.
Shorty Whittington, first vice chairman of the American Trucking Association and owner of Integrity Biofuels, said: "You're right in that, but it's a situation where the congestion in the trucking and rail, well, you hate to lose it. But what are we going to do with a third more trucks and that many more trains in the next ten years? The infrastructure that we're in is pretty tough."

Most experts admit there's something of a chicken-and-the-egg effect as companies consider shipping ethanol. The production of ethanol isn't high enough today to create a desperate need for pipelines, but without a pipeline infrastructure in place, companies are hesitant to produce more ethanol.
One motivator is the Energy Independence and Security Act of 2007, which President Bush signed in December. The law requires that American fuel producers use 36 bn gallons of renewable fuels by 2022, with is more than five times what is currently used.
"That's going to mean we're going to have to ship that stuff around," Urbanchuk said.

But the biggest challenge to Magellan and Buckeye now may not be moving products through an ethanol pipeline, but moving funding through the federal government pipeline.
"They have reached out to Congress and said, 'Some of this has merit, but we need some support and we need to know how much that support's going to be, because we need to make business decisions on our end,'" White said. "[This $ 3 bn project is] a substantial investment that you have to recapitalize somehow."

The companies' press release repeatedly stresses the importance of government support: "Congressional support and assistance is necessary for a project of this nature given the changing federal policies associated with renewable fuels."
"Magellan and Buckeye have to factorin the huge political risk that if we stop subsidizing ethanol as a country, that $ 3 bn investment could become worthless quickly," Huck said.
The Energy Act included a provision requiring that the government begin doing its own feasibility studies on ethanol-dedicated pipelines. The studies are to be released around this time in 2010.