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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

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)

  • 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


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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