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POET Joins Magellan Midstream Partners to Assess Dedicated Ethanol Pipeline; Buckeye Drops Out

18 March 2009

Magellan Midstream Partners, LP has signed a joint development agreement with POET to continue assessing the feasibility of constructing a dedicated ethanol pipeline. The proposed ethanol pipeline system would deliver ethanol from the Midwest to distribution terminals in the northeastern United States.

Magellan and Buckeye Partners, L. P. originally announced their intent to jointly study the feasibility of a large-scale renewable pipeline project in February 2008. (Earlier post.) Although Buckeye continues to believe pipelines are the most effective way to transport large volumes of liquid energy, they recently decided to focus on other priorities and have discontinued their role in this pipeline project.

POET is the largest producer of ethanol in the world with more than 1.5 billion gallons of annual ethanol production from 26 ethanol production facilities in seven Midwestern states. When combined with 300 million gallons of ethanol that POET markets for nine plants outside its network, POET is one of the largest ethanol marketers with 1.8 billion gallons of annual production.

The proposed common carrier pipeline system would gather ethanol from production facilities in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to serve terminals in major Northeastern markets. The project, preliminarily estimated to cost in excess of $3.5 billion, would span approximately 1,700 miles and would take several years to complete.

Although there are many hurdles to overcome to make this ethanol pipeline project a reality, Magellan and POET say they are optimistic that the need for a pipeline to deliver ethanol from the Midwest to distribution terminals in the northeastern United States may lead to a viable and successful project. A positive assessment will allow one or both partners to enter into a subsequent agreement to construct a dedicated ethanol pipeline.

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. In addition, federal legislation revising the US Department of Energy’s loan guarantee program is critical for a project of this nature to move forward.

March 18, 2009 in Brief | Permalink | Comments (3) | TrackBack (0)

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This appears to be a reasonable solution to ethanol distribution. Especially in light of conversion of corn-based ethanol to cellulosic ethanol in midwest facilities. Since a pipeline would reduce transportation energy and emissions and deliver renewable fuel to one of the biggest markets.

If the goal of energy independence is taken seriously by Obama's Admin - this would be a good candidate for fed construction loans.

Considering $2 gasoline and the financial credit situation, this might be something that a public/private partnership might address. Cellulose ethanol will need a way to get to market and this might be a good start.

Um, wait a minute. There are lots of questionable assumptions being made here. First, this is all about corn ethanol: the proposed pipeline would run through the Corn Belt. Any cellulosic ethanol that would end up being pumped through this pipeline in significant quantities is years away, and even then will probably only be the small extra amount made from bolt-on units to existing corn-ethanol plants using corn cobs as feedstock.

Second, if there is a technological break-through that substantially brings down the cost of making cellulosic ethanol, why wouldn't new capacity be built in New England, eastern PA, the northern New England states, and the bordering Canadian provinces -- all places with more abundant surplusses of wood cellulose than the areas from which this proposed pipeline would feed?

For now, in any case, the cheapest potential source of ethanol for downstate New York, New Jersey and New England is Brazilian, which can be transported directly to the ports by low-cost tanker ship (with a low carbon footprint, to boot). The economics of the proposed pipeline depend entirely on maintaining the existing $0.54/gallon supplemental import tariff on fuel ethanol that reduces competition on the seabords from Brazilian ethanol. Eliminate the tariff -- as an increasing number of policy makers are calling for -- and the rationale for the pipeline goes up in smoke.

But that, of course, is why the corn-ethanol industry is so keen on getting a pipeline from the Midwest built as soon as possible -- no doubt with lots of help from Uncle Sam and the states through which it would run. They know that, once a pipeline is built, it would create more fixed investment in the domestic industry and thus make Congress more reluctant to consider phasing out subsidies, lest they leave those assests stranded.

If Poet and Magellan Midstream Partners want to pool their resources and build a pipeline with their own resources, fine. But if they are counting on the project being underwritten by government subsidies and loan guarantees, then the economics of the project need first to be assessed under a scenario of no import tariff and and end to the blenders' tax credits.

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