Ethanol pipeline plan on hold

Source: Associated Press • Omaha World Herald  • Posted: Monday, January 23, 2012

POET Puts Pipeline on Hold

POET initially planned to work with Magellan Midstream Partners on the pipeline. Magellan put its interest on hold last year.

SIOUX FALLS, S.D. (AP) — The nation’s largest ethanol company, Poet LLC, announced Friday that it is putting on hold its plan to build a dedicated ethanol pipeline because of the lack of prospects for a federal loan guarantee.

Sioux Falls-based Poet and Magellan Midstream Partners LP had been studying the feasibility of a $3.5 billion, 1,800-mile pipeline that would send ethanol from plants in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to distribution terminals in the northeastern United States.

Magellan announced it was placing its interest in the project on hold early last year.

Jeff Broin, Poet’s chief executive, said the pipeline is a viable project that would have tremendous benefits for the country.

“But with little prospects for a federal loan guarantee in the near future, we are currently focused on other efforts,” Broin said in a statement.

A 2010 Energy Department study suggested that a dedicated ethanol pipeline could be profitable if the biofuel expanded beyond its use as a 10-percent additive in standard cars. That would come from a transition to a 15 percent blend in standard cars or a greatly expanded use of E85, an 85 percent blend that runs in flexible fuel vehicles.

But the Energy Department study also noted several barriers. Ethanol tends to cause more internal cracking of carbon steel pipe than gasoline or diesel, but the study found that an ethanol pipeline could operate safely and without stress corrosion cracking when appropriate measures are taken.

There are also siting and regulatory barriers, and such a project is unlikely to find affordable financing because of demand and supply uncertainty, and it would require government financial assistance.

The analysis by Poet and Magellan concluded that the project is economically viable with transportation rates about 15 percent lower than rail rates, and the venture becomes more viable with increased use of 15 percent and 85 percent blends.

Broin said Friday the existing infrastructure for transporting ethanol serves the industry well.

“While a pipeline could improve the efficiency of ethanol distribution and lower costs for motorists, the system that we have in place today has allowed ethanol to flow seamlessly into more than 90 percent of the gasoline sold,” he said.