Ethanol pipelines need aid
August 22, 2008
OMAHA (DTN) – The last place the Magellan Midstream Partners LP wants to be is in the middle of construction on a multi-billion-dollar dedicated ethanol pipeline when the federal government decides to pull the plug on the Renewable Fuel Standard.
It’s that unpredictability in federal ethanol policy that has many companies uptight.
That’s why companies like Magellan need a guarantee on their investments, said supporters of a bill that would make renewable fuel pipeline projects eligible for the U.S. Department of Energy’s loan guarantee program during a press conference in Des Moines, IA, Wednesday.
Without a loan guarantee, such projects would be subject to sudden changes in federal policy like a potential RFS waiver, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.
“Expect other assaults on the RFS,” he said. “That’s why it only makes sense that government provides some guarantees if regulations are pulled out from under some of these investments. Congress could reverse itself, that’s why a loan guarantee is important.”
In August the U.S. Environmental Protection Agency rejected a requested 50 percent waiver of the 2008, 9-billion-gallon Renewable Fuel Standard made by Texas Gov. Rick Perry.
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Bruce Heine, director of government and media affairs for Magellan, said pipeline companies want some assurance that any investment they make in such infrastructure – which can cost between $1 million and $5 million per mile to build – will have some level of financial protection.
“Let’s just say this is a $3 billion project shared between two companies,” he said. “With a 90 percent loan guarantee then each company would need $150 million each to meet federal requirements. That may not be much for some companies, but it is for us. There may be others interested in a project like this, and it is not unusual to have more than one partner in projects like this.”
Magellan, based in Tulsa, OK, in partnership with Pennsylvania-based Buckeye Partners LP, is exploring a potential $3-billion-plus investment to lay a 1,700-mile ethanol-dedicated pipeline that would carry about 250,000 barrels, or about 10 million gallons, of ethanol a day from northwest Iowa to the New York harbor.
The ethanol transportation system faced heavy duress in Iowa during the June floods, as most ethanol plants rely on truck, barge and rail to move their fuel to market.
Magellan operates several petroleum terminals in the Midwest, Heine said, and “not one of those closed during the flooding.
“This is a testimony for the reliability of a pipeline,” he said.
Iowa Democratic Rep. Leonard Boswell and Rep. Lee Terry, R-NE, introduced the Renewable Fuel Pipeline Act in recent weeks, which would qualify a renewable fuel pipeline as an eligible project under the federal loan guarantee program in the DOE. Right now, a renewable fuel pipeline does not qualify as an eligible project under the loan guarantee program created in the Energy Policy Act of 2005.
Boswell said gasoline prices that hit $4 a gallon and beyond in some areas have made what was seemingly an unaffordable project more viable.
“It will take about $4 billion in loan guarantees to get the project going, but it is doable,” he said. “We’re not going to give up – this is something that has to be done.”
Aside from the costs, pipeline companies such as Magellan continue to look at what might be the best materials used to build ethanol pipelines.
Currently ethanol cannot be transported in the same pipeline with gasoline because ethanol is corrosive to pipes.
In February Magellan and Buckeye announced a joint venture to study the feasibility of an ethanol pipeline.
According to a Feb. 19, 2008, news release from Magellan the pipeline would collect ethanol from ethanol plants in Iowa, Illinois, Minnesota and South Dakota, and would serve terminals in Pittsburgh, Philadelphia and the New York harbor and would take several years to build.
todd neeley can be reached at email@example.com.