Cross-country ethanol pipeline awaits federal loan

A major ethanol pipeline project that would stretch from South Dakota to New Jersey is slated to cross Indiana if its scheduled production begins in 2012.

The 1,800-mile pipeline would start in Davison County, South Dakota, snaking through Iowa and Illinois before crossing Indiana, Ohio and Pennsylvania and ending in Linden, New Jersey. The project is supposed to create 80,000 temporary jobs and 1,100 permanent jobs, boosting the economy.

“The expectation is for the pipeline to have many benefits,” said Bruce Heine, director of government and media affairs for Magellan Midstream Partners, L.P., the company planning the pipeline.

Heine said the pipeline should reduce greenhouse gas emissions and lower ethanol pump prices.

Since the project costs more than $4 billion to develop and construct, both Magellan and its partner in the project, POET LLC, have been in talks with the U.S. Congress since late 2007 and are waiting on a loan guarantee from the U.S Department of Energy.

Presently, pipelines do not qualify for funding, but Congress is considering amendments to the DOE’s loan guarantee program to include large-scale renewable fuel pipeline projects, according to a press release from POET, the largest ethanol producer in the world.

If the companies receive the loan, they say it is a two-year period to obtain right-of-way permits and will take two full years for construction.

“I would point out that ethanol is not economic without massive government subsidies,” IU business economics professor Bruce Jaffee said. “The requirement of a government loan guarantee suggests that this is not a viable project on a standard private sector analysis.”

Jaffee feels skeptical of the need for a public subsidy to construct a pipeline.

“If there is truly risk in terms of the viability of ethanol, I am far from convinced that it is the taxpayers who should bear the risk,” Jaffee said.

According to a report from the consulting firm LECG, when the pipeline is complete and operational, it would have the capacity to ship 240,000 barrels of ethanol a day and 3.6 billion gallons of ethanol per year.

This would be the first long-distance pipeline solely for ethanol in the United States. The only other ethanol pipeline in the country is in Florida.

POET spokesman Matt Merritt said making the pipeline now would make more sense from an economic and environmental aspect since ethanol demand is rising.
“Right now the mode of transportation is by trucks and trains,” Heine said. “The pipeline would be more efficient, reliable and cost efficient.”

LECG director John Urbanchuk said employment potential includes direct jobs, where people are employed in pipeline construction and operation, as well as indirect and induced jobs – those created in all other sectors of the economy as a result of spending.

“Any job claims are related to the relatively short construction period,” Jaffee said. “Pipelines require few workers to operate once they are completed ... a very small number to justify a massive government subsidy.”

LECG reported that the U.S. economy will be $6.6 billion larger by 2015 as a result of the investment in the development and construction as well as generate $3.7 billion in household income. The pipeline will also increase federal tax revenues by $715.1 million while state and local governments will receive additional tax revenues of $618 million.

“This is an example of the ethanol industry trying to make things more efficient,” Merritt said. “It is an ongoing process. It will help the environment and is more
economical.”