Ethanol Infrastructure

Something to keep your eye on is the build-out of ethanol infrastructure now that the Energy Act has been signed into law, with an RFS requiring 36 billion gallons of renewable fuel by 2022. [if you're keeping score at home 36 billion gallons would be almost 8 times the amount produced in 2007 (4.7 billion).]

Developing the ethanol supply chain at a pace matching the considerable growth in ethanol production and demand has been an issue in the ethanol industry for a while. This article in Ethanol Producer Magazine a few months back highlights many of these concerns:

Is the infrastructure and equipment in place to handle the production, loading, unloading, shipping, transporting, storing and delivery of ethanol and its derivative products—with all of their unique properties and compatibility issues—to the consumer's gasoline tank or store shelf?

One major concern has been the difficulty in using pipelines to transport ethanol. Pipelines would be the cheapest way to move ethanol from the middle of the country to the coasts, but ethanol producers are limited to far more expensive truck and rail transportation. Why? A number of reasons:

Due to its unique properties, ethanol-blended fuel generally can’t be shipped by petroleum product pipelines... This is mainly related to ethanol's affinity for water, which is a byproduct found at some level in all of the world's major petroleum pipeline systems. The ability to ship by pipeline is also limited because there are currently no pipeline networks near the majority of ethanol production facilities. Therefore, a separate distribution system is needed to get ethanol to the point where it is blended into petroleum-based fuel and loaded into tank trucks or railcars for delivery to retail and fleet operators. The costs of building a new pipeline in the United States are also extremely prohibitive with estimates as high as $1.1 million to $1.3 million per mile.

The American Petroleum Institute has a great backgrounder on the issue here (document download) while the Association of Oil Pipe Lines has a great presentation available here.

This topic certainly requires much greater analysis and coverage than one post, but I wanted to highlight one example I came across this week. Despite the challenges, the ethanol and oil industries are feeling optimistic that they can solve the issue:

The burgeoning U.S. ethanol industry is looking longingly at existing oil product pipelines for transporting the alternative fuel, an idea almost unthinkable a few years ago because of contamination fears...

..."We have been engaged in research on this," Steve Baker, a spokesman for the Colonial Pipeline, the country's largest oil products pipeline, said in an interview. "Early results are encouraging, but there is a lot more research required on our end." He said Colonial has worked with several major ethanol producers on studying ways to send the alternative fuel up existing pipelines or along new dedicated pipelines that could be built on the existing right-of-ways...

...Oil companies are cautiously optimistic that breakthroughs could be made. "The problems with water contamination are technical issues that need to be addressed; it's not that they can't be addressed," said Peter Lidiak, the pipeline director for industry group the American Petroleum Institute. He said the industry is researching whether sending pure ethanol, or fuel blends, via pipeline can be done without corroding the ducts. "The hope is that some of the first bit of this research will yield some good results within the next year or so, and then it will be a matter of time before the companies move it -- if the results look good," said Lidiak.

Again, there are not a lot of specifics in the article (although separately the AOPL is expanding its R&D efforts, and some companies are considering building pipelines). Still, I believe this is a topic and issue that will grow in prominence. And, given the mandate put forth by our government, it will likely become an area that receives increasing attention (and capital investments) over the next several years.