Pipeline, terminal, E85 plans move forward

By Luke Geiver | March 16, 2010
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As ethanol distribution demands increase, infrastructure planning continues to expand.

Magellan Midstream Partners LP has joined with ethanol giant Poet LLC to assess the feasibility of a 1,800-mile ethanol pipeline. Starting in Davison County, S.D., the proposed pipeline would connect ethanol production facilities in the Midwest to distribution outlets in the northeast U.S., ending in Linden, N.J. Based on a report done by consulting firm LECG Inc., the capacity of the pipeline would equal 240,000 barrels of ethanol a day, an amount of more than 3.5 billion gallons annually.

For both parties, the proposed pipeline is not only the next step for ethanol distribution efficiency, but a necessary component for the future of the ethanol industry. "Pipelines are the most cost efficient, safest and most reliable mode of transportation for liquid energy," Mike Mears, chief operating officer of Magellan said. "Construction of a large-scale renewable fuel pipeline complements the national objective of creating quality jobs while increasing transportation efficiencies for the growing renewable fuels industry."

The Biofuels Interagency Working Group, with members from the USDA, DOE and the U.S. EPA recently released an agenda outlining a way to achieve President Barack Obama's biofuels target. Job creation, a contributing factor of Obama's biofuels target, is something Poet CEO Jeff Broin believes will happen with the construction and use of the proposed pipeline. "This project has the clear environmental benefit of dramatically reducing carbon emissions from traditional ethanol transportation, and this latest report shows its important impact on our economy. Ethanol continues to play a large role in the new energy economy taking shape in the U.S."

According to the report, 80,000 jobs would be created during the construction of the pipeline with 1,100 permanent jobs available for pipeline operation. Even with the promise of new jobs and environmental benefits, the pipeline feasibility depends on a DOE loan. "The status of our study resides in Washington," Bruce Heine of Magellan said. "We are working with Congress to modify the loan guarantee program with the DOE."

The DOE loan program was not equipped to handle an 1,800-mile pipeline according to Heine. Until the loan status from the DOE gets resolved, the pipeline will have to wait, but the expansion of blending terminals and pumps by other infrastructure players will move forward. Kinder Morgan Energy Partners LP recently partnered with U.S. Development Group, an ethanol blending and handling company. As part of the joint agreement, KMP acquired three USD train ethanol terminals in Linden, N.J., Baltimore, Md., and Dallas, Texas, for a total of approximately $195 million. The terminal acquisition will create a nationwide distribution network of ethanol handling facilities connected by rail, marine, truck and pipeline, according to KMP.

The train terminal acquisitions bring KMP investments in the renewable fuels handling business close to $500 million. Although the joint venture agreement is not currently developing a pipeline, Dan Borgen, president and CEO of USD noted the changes the partnership will bring to ethanol movement. "We look forward to partnering with Kinder Morgan, a national leader in fuel transportation and storage, to revolutionize the way that biofuels are delivered to the market. The venture will offer immediate, significant efficiencies for our customers."

KMP believes the formation will also help customers on all three coasts. Along with USD partnership, KMP has added ethanol handling capacity at its Orlando, Fla., terminal with the addition of a 100,000 barrel storage tank. KMP is currently building new unit rail car ethanol loading facilities, in Richmond, Calif., and Houston, Texas.

The push for infrastructure expansion doesn't just stop with the transportation sector. The DOE has awarded Growth Energy a $200,000 grant for the expansion of E85 blending stations in the states of Virginia and Washington. The award, one of eight given to support existing retail ethanol fuel locations, will also be given to the states of Arkansas, California, Florida, Georgia, Michigan, Missouri and Texas. The stations will be selected according to proximity to key highway corridors and areas with higher concentrations of flexible fuel vehicles. The general plan for each state is to retrofit existing pumps for E85 use or install new pumps. "By increasing the use of ethanol in America," Tom Buis, CEO of Growth Energy said, "we will create new green -collar jobs, reduce our dependence on foreign oil, strengthen our national security and improve the environment."

The DOE's funding for blender pumps indicates the ongoing infrastructure build-out, but Growth Energy, like KMP and Poet, is still awaiting information regarding funding details.