DOE issues ethanol pipeline feasibility study

By Kris Bevill | July 15, 2010
Posted July 20, 2010

The U.S. DOE recently concluded a study to determine the feasibility of constructing and using a pipeline to transport ethanol from the Midwest to the East Coast. The agency concluded that while a dedicated ethanol pipeline would reduce the burden of transport on railroads, enhance fuel delivery infrastructure and reduce greenhouse gas emissions, ethanol volume must be increased significantly before the pipeline could be economically viable.

According to the study, the ethanol volume expected to be pipelined from producers in the Midwest to demand centers in the East Coast is approximately 2.8 billion gallons per year. This estimate is based on current consumption projections and includes demand for E10 and E85. Using an assumed pipeline construction cost of $4.25 billion, the DOE determined that a pipeline tariff would average 28 cents per gallon. Comparatively, other modes of transport along the same corridor currently charge an average tariff of 19 cents per gallon. Therefore, in order for the ethanol pipeline to be cost competitive with truck, barge and rail options, the DOE found the pipeline would need to transport approximately 4.1 billion gallons of ethanol annually. The DOE stated that this increased volume can only be achieved through a significant increased demand for E85 or widespread use of ethanol blends greater than E10.

Other risks associated with an ethanol pipeline aside from financial considerations were focused mainly on policy issues. The DOE stated that if current supportive policy measures were removed, including the renewable fuels standard mandate, the Volumetric Ethanol Excise Tax Credit and the ethanol tariff, the pipeline's feasibility would face serious consequences.

The hypothetical pipeline used in the DOE's feasibility study was based on a pipeline project proposed in 2008 by Magellan Midstream Partners LP and Buckeye Partners LP. Magellan and Poet LLC are currently working on a similar project to construct a pipeline to transport ethanol from the Midwest to a distribution center in New Jersey. The companies said that while their project differs somewhat from the DOE's hypothetical pipeline, they were pleased with the DOE's overall results. "We believe the DOE's conclusions are directionally correct: a large scale pipeline project is feasible under certain conditions and that a federal loan guarantee is necessary to move forward," the companies said in a statement. "In addition, the DOE confirms that transporting energy via pipelines has multiple benefits such as reducing congested highway and rail systems while reducing greenhouse gas emissions when compared to other modes of transportation."

Magellan and Poet said their project is based on a smaller capital cost of $3.55 billion and is estimated to have transportation rates 15 percent lower than rail rates. The pipeline would have an annual capacity of 3.5 billion gallons.