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Ethanol Transportation & Distribution New York Energy Forum Mike Mears Senior Vice President

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Ethanol Transportation & Distribution New York Energy Forum Mike Mears Senior Vice President [email protected] 918 574 7400. Presentation Outline. Introducing Magellan Midstream Partners (formerly Williams Energy Partners / Williams Pipeline)

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Presentation Transcript
slide1

Ethanol Transportation & Distribution

New York Energy Forum

Mike Mears

Senior Vice President

[email protected]

918 574 7400

slide2

Presentation Outline

  • Introducing Magellan Midstream Partners (formerly Williams Energy Partners / Williams Pipeline)
  • Our experience with the distribution of ethanol
  • The prospect of transporting ethanol and ethanol blends via pipeline
    • Commercial opportunities
    • Technical Challenges
  • Industry research
  • Congressional action
magellan s structure a publicly traded partnership
Magellan’s StructureAPublicly Traded Partnership

Magellan Midstream Holdings, L.P.

(NYSE: MGG)

Magellan Midstream Partners, L.P. (NYSE: MMP)

Petroleum Products Pipeline System

Marine and Inland Terminals

Ammonia Pipeline System

slide4

Magellan’s Asset Portfolio

  • Petroleum products pipeline system
    • Longest contiguous pipeline in U.S. (8,500 miles)
    • Access to greater than 40% of refinery capacity in continental United States
  • Total of 81 petroleum product terminals in 22 states
    • 45 terminals connected to Magellan Pipeline, 27mm barrels storage
    • Marine terminals
      • 7 locations with 22 million barrels storage
    • Inland terminals
      • 29 locations with 6 million barrels storage; connected to 3rd party pipelines
  • Ammonia pipeline system (1,100 miles)
magellan pipeline refined products
Magellan Pipeline – Refined Products

Significant Market Presence

Oklahoma, Missouri, North Dakota,

Kansas, Nebraska, Iowa,

Minnesota and South Dakota

pipeline fundamentals
Pipeline Fundamentals
  • Pipelines are the most cost efficient and safest method of transporting liquid fuels
  • Tariff from Houston to Kansas City about 6 cents per gallon (about 750 miles)
  • Common Carrier vs. Proprietary Pipeline
  • Product batching…gasoline / diesel / jet fuel
  • Boutique fuels require incremental infrastructure and creates capacity limitations due to scheduling inefficiencies
  • Today, ethanol is transported via truck, rail, barge and ship. Blending takes place at terminals
ethanol blending at terminals
Ethanol Blending at Terminals
  • We have ethanol blending at 35 terminals today (and planning for more)
  • Ratio Blending
    • Gasoline and ethanol blended proportionally as the blended fuel enters the truck
  • Sequential Blending
    • Ethanol enters the truck first followed by gasoline
  • Ratio & Sequential systems promote quality blends
  • Total ethanol blending infrastructure costs $2 to $3 million per terminal
  • Railcar offloading infrastructure substantially higher
ethanol pipelines
Ethanol & Pipelines
  • As domestic and international ethanol production continues to increase, the economic viability of domestic pipeline shipments increase as well
  • The potential introduction of ethanol into the pipeline system brings challenges and opportunities
  • Commercial opportunities include the potential shipment of 10% ethanol blends as well as fuel grade ethanol
  • The challenge is related to the potential incompatibility of fuel grade ethanol with the existing pipeline infrastructure
    • Existing dedicated neat ethanol systems have experienced pipeline failures
  • Urgent need to study the viability of transporting low level ethanol blends (10%) via our existing pipeline system (Industry has no operating experience)
technical issues
Technical Issues
  • Technical factors regarding transportation of ethanol by pipeline
    • Moisture
    • Materials compatibility
    • Stress Corrosion Cracking (SCC)
      • SCC is the formation of brittle cracks in a material that occurs as a result of corrosion processes and stress
  • SCC historically found in pipelines and tanks that are in dedicated ethanol service
  • Cracks develop around welds with high stress or tight bends
  • Historical data suggests SCC appears at distribution terminals (not ethanol plants)
ethanol transportation via a dedicated pipeline
Ethanol Transportation via a Dedicated Pipeline
  • Other important factors
  • Economics
    • A pipeline from the Midwest to the east coast could be a multi-billion dollar project
    • Transportation rates for a Midwest to East / West Coast pipeline would be competitive with rail transportation rates. A 12” line could move up to 100,000 barrels per day (4.2 million gallons per day)
  • Commercial Viability
    • Ability to secure long-term shipper commitments
ethanol pipeline via a dedicated pipeline
Ethanol Pipeline via a Dedicated Pipeline

Ethanol Production

  • Logistics
    • Individual production facilities are small relative to volumes necessary to support a pipeline
    • Average ethanol plant produces 3,417 barrels per day*
    • Aggregation facility of up to 100,000 barrels per day (supply from 30 average size ethanol plants)
    • Distribution terminals at the terminus of the pipeline
  • Regulatory Authority
    • Which federal agency will have oversight authority over ethanol pipelines?

*123 ethanol plants with 6.444 billion gallons of capacity

Renewable Fuels Association 7/23/07

study underway
Study Underway
  • Association of Oil Pipelines (AOPL) and the API working with the Pipeline Research Council International (PRCI)
  • Multiple research projects underway to resolve the technical issues associated with pipelining ethanol
    • Short term (6 to 12 months) - what level of ethanol blends are compatible with existing pipeline systems with little or no modification
    • Long term (36 to 48 months) –
      • identify the environmental factors that produce SCC in ethanol pipelines and terminals
      • SCC susceptibility in existing batched pipeline systems
      • Design requirements for new, dedicated ethanol pipelines
congressional action
Congressional Action
  • House and Senate Energy bills and the House Farm bill includes a provision which provide funds to study the feasibility of an ethanol pipeline
  • The Senate Finance Committee passed its Energy Tax title which include a provision to allow the transportation of ethanol and biodiesel blends as “qualifying income” for publicly traded partnerships
    • Important to maintain partnership status
takeaways
Takeaways
  • Pipelines remain the most reliable, safe and economic mode to transport large volumes of liquid energy
  • Because of the increasing domestic and international ethanol production base, pipelines may provide an economic method of transportation for ethanol
  • SCC challenges must be resolved
  • Magellan is actively involved with other pipeline industry leaders in finding technical solutions
    • AOPL and API members are funding research to address SCC
    • Congress may provide funding for additional study
  • Transportation of ethanol blends via pipeline may be feasible in the short term
    • Would eliminate the need for costly rail offloading infrastructure at terminals
magellan midstream partners l p nyse mmp

Magellan Midstream Partners, L.P. (NYSE: MMP)

www.magellanlp.com

Magellan Midstream Holdings, L.P. (NYSE: MGG)

www.mgglp.com

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