By DIRK LAMMERS
A dedicated ethanol pipeline could be profitable if the biofuel expands beyond its use as a 10-percent additive in standard cars, a new government study suggests.
A U.S. Department of Energy study released Monday said the nation would first have to boost its use of the alternative fuel either through greatly expanded use of E85, an 85-percent blend that runs in flexible fuel vehicles, or a transition to 15- and 20-percent blends in standard cars.
Assuming ethanol demand volume of 2.8 billion gallons a year and a project construction cost of $4.25 billion, a pipeline would need to charge an average tariff of 11 cents more per gallon than if the fuel was moved by rail, barge or truck.
"Even at a lower pipeline construction cost ($3.75 billion), significant financial incentives would be required to make the pipeline profitable if ethanol blends remain capped at 10 percent and E85 demand is not significantly expanded," the study found.
The Energy Department was considering a hypothetical project, but top ethanol producer Poet is already looking at moving its product by pipe.
Sioux Falls-based Poet and Magellan Midstream Partners LP are 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.
The companies' analysis of their project concludes that it is economically viable with transportation rates about 15 percent lower than rail rates. The venture becomes more viable if flexible fuel vehicles that run on E85 become more popular and the Environmental Protection Agency allows higher concentrations of ethanol in gasoline.
The EPA recently announced that it would wait until this fall to decide whether U.S. car engines can handle the higher blends,
The ethanol industry has maintained that there is sufficient evidence to show that a 15 percent ethanol blend in motor fuel will not harm the performance of car engines. The refining industry, small engine manufacturers and some environmental groups have argued against an increase.
Poet said a renewable fuel pipeline would enhance the transportation efficiencies for the domestic renewable fuels industry.
"Pipelines are the most reliable, cost effective and safest mode of transportation capable of moving large volumes of liquid energy from where it is produced to where it is consumed," the company said in a statement.
A viable ethanol pipeline does face several challenges, the Energy Department said.
Ethanol tends to cause more internal cracking of carbon steel pipe than gasoline or diesel, but the study found that an ethanol pipeline can operate safely and without stress corrosion cracking when appropriate measures are taken.
Such a project is unlikely to find affordable financing because of demand and supply uncertainty, and it would require government financial assistance.
The Energy Department said there are also siting and regulatory barriers.
"Environmental assessments for a dedicated ethanol pipeline could face more than average complications due to its first-of-a-kind nature and a growing public resistance to the ethanol industry," the study noted.

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Our Take:
Flexibility. A pipeline will provide greater flexibility for both producer and consumer. The current situation of dependency on rail and truck to reach ethanol’s coastal markets is a significant limiting factor for producers. The more transportation alternatives available, the more economical each of the alternatives will be forced to be.

A pipeline also alleviates the worry of supply hiccups that drives the price up for those consumers. A more efficient transportation system would mean more profits for producers and happier customers at the same time.

It is one of the hopes of Minnesota farmer-owned energy producers that the markets for their products will continue to grow, but they also see deem the spread of locally-owned renewable energy production as a long-term public.

In a truly mature American biofuels industry, the Midwestern producers will supply a steady portion of the total biofuels market, but by no means all of the fuel needed by Californians or New Yorkers.

The initial investment in this infrastructure is too big for the ethanol producers to handle, alone. A forward looking national energy policy would consider the benefits to producers and consumers of such a pipeline and help to take us further along the path to a renewable, energy independent future.