$3.5 Billion Ethanol Pipeline Proposal Resurfaces With New Player, Higher Cost
By John O'Dell March 16, 2009
The nation's largest ethanol production and marketing company joined forces today with an energy distribution firm that has proposed construction of a $3.5 billion, 1,700-mile pipeline (click on map for large view)
to carry ethanol from the Midwest cornbelt to the auto-dependent Northeast.
South Dakota-based Poet, which represents ethanol companies with 1.8 billion gallons of annual production capacity, has signed a joint development agreement with Magellan Midstream Partners to study the feasibility of the dedicated ethanol pipeline.
When we originally wrote about the proposal in February 2008, the pipeline was supported by Oklahoma-based Magellan and Buckeye Partners of Pennsylvania. But Magellan today said that Buckeye had "recently decided to focus on other priorities and have discontinued their role in this pipeline project."
The project is far from a done deal.
"Federal legislation revising the U.S. Department of Energy's loan guarantee program is critical for a project of this nature to move forward," Magellan said, adding that even with a federal loan guarantee, "the feasibility of this project is dependent upon the successful outcome of ongoing studies addressing technical and economic issues associated with the transportation of ethanol via pipeline."
The pipeline's cost also seems to have risen from the $3.billion estimate in early 2008 to "in excess of $3.5 billion," according to today's news release.
"A project of this nature would provide benefits throughout the ethanol industry, agricultural community and the economy in general," Poet Chief Executive Officer Jeff Broin said in a statement. "It would also represent another major step forward in the efficiency of producing and delivering ethanol to the marketplace."
Petroleum products and natural gas often are transported from production and refining facilities to distribution points via high-pressure underground pipelines.
Ethanol producers generally must ship their product via rail and tanker trucks, though. Because of the caustic nature of ethanol, it can't be sent through existing pipelines set up for other types of fuels.
Proponents believe the proposed pipeline would offer economies of scale by carrying upwards of 10 million gallons of ethanol each day from producers in Illinois, Iowa, Minnesota and South Dakota to distribution points in Pennsylvania and New York.
The fuel then would be blended with gasoline to enhance combustion, reduce emissions and, in theory, reduce national dependence upon foreign energy. There is growing concern, however, that fuel made from corn can require more energy to produce and can divert corn from the food chain - boosting the price and reducing the availability of corn-based food products.
Some studies have shown that so-called cellulosic ethanol made from non-edible cellulose derived from wood chips, fast-growing grasses and other non-food sources, is a preferred alternative to corn-based ethanol.
On that front, Magellan and Poet note that the proposed pipeline would be equally suited to transport corn-based or cellulosic ethanol.
Greg Johnson, Contributor
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There are two benefits of such a project that I can see. First, it will create jobs. With unemployment over 8%, this benefit, however minor, should not be overlooked. Second, it will provide another avenue for Federal funds to make it into the money supply, further stimulating the economy. Otherwise I feel this project is like hiring a bunch of people to dig holes and then fill them in. That is: of no real benefit (except to the "ethanol industry"). Maybe I just don't understand the ethanol market, but here in Illinois, where E85 is readily available, few people ever use it. That's because even at a lower cost, the worse fuel economy is more than enough to make it uneconomical. What makes the "ethanol industry" think that demand is going to be any different further east? At least, what makes them think demand will be enough to justify spending $3.5B+ on a pipeline?
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