Post on 27-Dec-2015
transcript
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Ethanol Transportation & Distribution
Governors Ethanol Coalition
Mike MearsSenior Vice Presidentmike.mears@magellanlp.com918 574 7400
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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 pipelineCommercial opportunitiesTechnical Challenges
What is Stress Corrosion Cracking? Industry researchCongressional action
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Magellan Midstream Partners, L.P. (NYSE: MMP)
Petroleum Products Pipeline
System
Magellan Midstream Holdings, L.P.(NYSE: MGG)
Magellan’s StructureA Publicly Traded Partnership
Marine and Inland Terminals
Ammonia Pipeline System
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Magellan’s Asset PortfolioPetroleum products pipeline system
Longest 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)
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Magellan Pipeline – Refined Products
Significant Market PresenceOklahoma, Missouri, North Dakota, Kansas, Nebraska, Iowa, Minnesota and South Dakota
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Pipeline FundamentalsPipelines are the most cost efficient and safest method of
transporting liquid fuelsTariff from Houston to Kansas City about 6 cents per
gallonCommon Carrier vs. Proprietary Pipeline
Magellan’s open stock systemProduct batching…gasoline / diesel / jet fuelBoutique 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
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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
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Ethanol & Pipelines
As domestic and international ethanol production continues to increase, the economic viability of domestic pipeline shipments increase as well
The 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 Unknown short and long term risks to the operation and system
integrity of the pipeline
Urgent need to study the viability of transporting low level ethanol blends (10%) via our existing pipeline system
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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 stressSCC historically found in pipelines and tanks
that are in dedicated ethanol service Cracks develop around steel construction with
high bendsWelds with high stress
Historical data suggests SCC appears at distribution terminals (not ethanol plants)
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SCC Example – Magellan’s Omaha Terminal
Leak
Photo
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Ethanol Transportation via Multi-Products or Dedicated Pipeline
Other important factors
Economics A pipeline from the Midwest to the east coast could be a
multi-billion dollar project Pipeline 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 Our ability to secure long-term shipper commitments
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Ethanol Pipeline 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?
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50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1980
1983
1986
1989
1992
1995
1998
2001
2004
May-07
barrels per day
*123 ethanol plants with 6.444 billion gallons of capacityRenewable Fuels Association 7/23/07
Ethanol Production
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Study Underway
Association of Oil Pipelines (AOPL) and the API working with the Pipeline Research Council International (PRCI)
Mulitple 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
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House and Senate Energy bills include 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
Congressional Action
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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
Takeaways
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Magellan Midstream Partners, L.P. (NYSE: MMP)
www.magellanlp.com
Magellan Midstream Holdings, L.P. (NYSE: MGG)
www.mgglp.com