GAO on why ethanol, and other non-drop in fuels, face pipeline & installation at service station challenges

[The challenges that ethanol faces in being put into new or modified pipelines and added to gas stations are issues faced by all alternative fuels (methanol, CNG, LNG, DME, diesohol, CTL, hydrogen, and so on) in a transition from gasoline and diesel to “Something Else”. 

Since natural gas, coal-to-liquids, and other fuels are nonrenewable and also at or near their peak, and biofuels don’t scale up (and have a negative EROI), it’s unlikely that these problems will need to be solved. But it’s still interesting to understand why E85 is in so few stations.  Alice Friedemann]

USGAO. June 2011. Challenges to the transportation, sale, and use of intermediate ethanol blends. United States Government Accountability Office. 57 pages

The U.S. transportation sector is almost entirely dependent on petroleum products refined from crude oil—primarily gasoline and diesel fuels. In 2009, this sector consumed the equivalent of about 14 million barrels of oil per day, or over 70% of total U.S. consumption of petroleum products. To meet the demand for crude oil and petroleum products, the nation imported, on a net basis, about 52 percent of the petroleum products consumed in 2009.

Ethanol is the most commonly produced biofuel in the United States. In 2010, the nation produced 13.2 billion gallons of ethanol, the vast majority of which came from corn. Most U.S. corn is grown in the Midwest, and ethanol is generally produced in relatively small biorefineries near corn producing areas. Unlike petroleum products, which are primarily transported to wholesale terminals by pipelines, ethanol is transported to wholesale terminals by a combination of rail, tanker truck, and barge. At the terminals, most ethanol is currently blended as an additive in gasoline to make fuel blends containing up to 10 percent ethanol (called E10). Finally, the blended fuel is transported via tanker truck to retail fueling outlets.

In a 2009 report, we identified fuel-blending limits as a challenge to expanded ethanol consumption.  We stated that the nation may soon reach a “blend wall”-the upper limit to the total amount of ethanol that can be blended into U.S. gasoline, given current constraints. At the time, the blend wall existed partly because under EPA’s implementation of the Clean Air Act, fuels containing more than 10% ethanol were prohibited from being introduced for use with the vast majority of U.S. automobiles.

One option to address the blend wall is to use “intermediate” ethanol blends such as E15 or E20 (generally 15% or 20% ethanol).

The EPA, in January 2011, allowed E15 for use in model years 2001 through 2006 automobiles. The EPA did not allow E15 for use in older automobiles or non-road engines (such as lawn mowers, chainsaws, and boats), motorcycles, or heavy-duty gasoline engines. EPA cited insufficient test data to support the use of E15 in these engines, as well as engineering concerns that older vehicles and non-road engines may not maintain compliance with emission standards if operated on E15.  In light of the potential use of intermediate ethanol blends, you asked us to review their potential effects. Our objectives were to (1) determine the challenges, if any, associated with transporting additional volumes of ethanol to wholesale markets to meet RFS requirements; (2) determine the challenges, if any, associated with selling intermediate ethanol blends at the retail level; and (3) examine research by federal agencies into the effects of intermediate ethanol blends on the nation’s automobiles and non-road engines.

As shown in figure 2, the infrastructure used to transport petroleum fuels from refineries to wholesale terminals in the United States is different from that used to transport ethanol. Petroleum-based fuel is primarily transported from refineries to terminals by pipeline.  In contrast, ethanol is transported to terminals via a combination of rail cars, tanker trucks, and barges.  According to DOE estimates, there are approximately 1,050 terminals in the United States that handle gasoline and other petroleum products. At the terminals, most ethanol is currently blended as an additive in gasoline to make E10 fuel blends. A relatively small volume is also blended into a blend of between 70% to 83% ethanol (E85) and the remainder gasoline. E85 has a more limited market, primarily in the upper Midwest, and can only be used in flexible-fuel vehicles, which are vehicles that have been manufactured or modified to accept it.  After blending, the fuel is moved to retail fueling locations in tanker trucks.

There are approximately 159,000 retail fueling outlets in the United States, according to 2010 industry data. This total included more than 115,000 convenience stores, which sold the vast majority of all the fuel purchased in the United States. Consumers in the United States use retail fueling locations to fuel hundreds of millions of automobiles and non-road products with gasoline engines. According to DOT data, Americans owned or operated almost 256 million automobiles, trucks, and other highway vehicles in 2008, while about 91% of all households owned at least 1 automobile the same year, according to U.S. Census data. Americans also owned and operated over 400 million products with non-road engines in 2009, according to one industry association estimate. According to EPA documentation, non-road engines are typically more basic in their engine design and control than engines and emissions control systems used in automobiles, and commonly have carbureted fuel systems  and air cooling, whereby extra fuel is used in combustion to help control combustion and exhaust temperatures. According to representatives from industry associations for non-road engines, most of the small non-road engines manufactured today rely on older technologies and designs to keep retail costs low, and all of the small non-road engines currently being produced are designed to perform successfully on fuel blends up to E10. According to industry representatives, while it is possible to design small non-road engines to run on a broad range of fuels, such designs would not be cost effective and could add hundreds of dollars to the price.

Fuel economy. According to DOE’s report for Project V1, ethanol has about 67 percent of the energy density of gasoline on a volumetric basis. As a result, automobiles running on intermediate ethanol blends exhibited a loss in fuel economy commensurate with the energy density of the fuel. When compared to using gasoline containing no ethanol, the average reduction in fuel economy was 3.7 percent using E10, 5.3 percent using E15, and 7.7 percent using E20.

Large investments in transportation infrastructure may be needed to meet 2022 projected consumption, according to EPA documentation. One option for doing so may be to construct a dedicated ethanol pipeline, but this option presents significant challenges.

Railroads hauled more than 220,000 rail carloads of ethanol in 2008 (the most recent year for which data are available)-which was about 0.7 percent of all the rail carloads and about 1% of the total rail tonnage transported that year in the United States, according to data from the Association of American Railroads. Similarly, knowledgeable DOT officials and industry representatives said there is sufficient capacity in the short term to transport additional volumes of corn ethanol via trucks, which transport about 29% of corn ethanol to wholesale markets, and barges, which transport roughly 5%, to meet RFS requirements.

If overall ethanol production increases enough to fully meet the RFS over the long term, one option to transport it to wholesale markets would be through a dedicated ethanol pipeline. Over many decades, the United States has established very efficient networks of pipelines that move large volumes of petroleum-based fuels from production or import centers on the Gulf Coast and in the Northeast to distribution terminals along the coasts. However, the existing networks of petroleum pipelines are not well suited for the transport of billions of gallons of ethanol. Specifically, as shown in figure 4, ethanol is generally produced in the Midwest and needs to be shipped to the coasts, flowing roughly in the opposite direction of petroleum-based fuels. The location of renewable fuel production plants (such as biorefineries) is often dictated by the need to be close to the source of the raw materials and not by proximity to centers of fuel demand or existing petroleum pipelines.

Existing petroleum pipelines can be used to ship ethanol in some areas of the country. For example, in December 2008, the U.S. pipeline operator Kinder Morgan began transporting commercial batches of ethanol along with gasoline shipments in its 110-mile Central Florida Pipeline from Tampa to Orlando. Kinder Morgan invested approximately $10 million to modify its Central Florida Pipeline for ethanol shipments, which included chemically cleaning the pipeline, replacing equipment that was incompatible with ethanol, and expanding storage capacity at its Orlando terminal.

However, pipeline owners would face the same technical challenges and costs that Kinder Morgan representatives reported facing, including the following:

  • Compatibility. Ethanol can dissolve dirt, rust, or hydrocarbon residues in a petroleum pipeline and degrade the quality of the fuel being shipped. It can also damage critical nonmetallic components, including gaskets and seals, which can cause leaks. In order for existing pipelines to transport ethanol, pipeline operators would need to chemically remove residues and replace any components that are not compatible with ethanol. According to DOT officials, the results from two research projects sponsored by that agency have identified specific actions that must be taken on a wide variety of nonmetallic components commonly utilized by the pipeline industry.
  • Stress corrosion cracking. Tensile stress and a corrosive environment can combine to crack steel. The presence of ethanol increases the likelihood of this in petroleum pipelines. Over the past 2 decades, approximately 24 failures due to stress corrosion cracking have occurred in ethanol tanks and in production-facility piping having steel grades similar to those of petroleum pipelines. According to DOT officials, the results from nine research projects sponsored by that agency have targeted these challenges and produced guidelines and procedures to prevent or mitigate stress corrosion cracking. As a result, pipelines can safely transport ethanol after implementing the identified measures, according to DOT officials.
  • Attraction of water. Ethanol attracts water. If even small amounts of water mix with gasoline-ethanol blends, the resulting mixture cannot be used as a fuel or easily separated into its constituents. The only options are additional refining or disposal.

Some groups have proposed the construction of a new pipeline dedicated to the transportation of ethanol. For example, in February 2008, Magellan Midstream Partners, L.P. (Magellan) and Buckeye Partners, L.P. (Buckeye) proposed building a new pipeline from the Midwest to the East Coast.

The federal government has studied the feasibility of building a pipeline similar to the one proposed by Magellan. The report identified a number of significant challenges to building a dedicated ethanol pipeline, including the following:

  • Construction costs. Using recent trends in and generally accepted industry estimates for pipeline construction costs, DOE estimated that an ethanol pipeline from the Midwest to the East Coast could cost about $4.5 million per mile. While DOE assumed that the construction of 1,700 miles of pipeline would cost more than $3 billion, it did not model total project costs beyond $4.25 billion in the report.
  • Higher transportation rates. Based on the assumed demand for ethanol in the East Coast service area and the estimated cost of construction, DOE estimated the ethanol pipeline would need to charge an average tariff of 28 cents per gallon, substantially more than the current average rate of 19 cents per gallon, for transporting ethanol using rail, barge, and truck along the same transportation corridor.
  • Lack of eminent domain authority. DOE estimated that siting a new ethanol pipeline of any significant length will likely require federal eminent domain authority, which currently does not exist for ethanol pipelines.

Non-Drop-in fuels face huge barriers in being added to service stations as shown by E85

According to several industry associations representing various groups, such as fuel retailers and refiners, many fuel retailers may face significant costs and risks in selling intermediate ethanol blends. According to these industry representatives, retailers make very little money selling fuel-for example, the national average profit from selling gasoline last year was 9 cents per gallon, according to industry data. Most retailers make most of their profit selling merchandise such as food, beverages, and tobacco products, according to these industry representatives, and gasoline is sold below cost in some markets to attract customers to buy more profitable goods. As a result, according to several industry representatives, most retailers do not upgrade their fuel-storage and -dispensing equipment without a significant market opportunity.

For these fuel retailers, the prospect of selling intermediate ethanol blends presents several potential challenges. The first is cost. Some fuel retailers may have to spend hundreds of thousands of dollars to upgrade their equipment to store and dispense intermediate ethanol blends, for the following reasons:

  • Under current OSHA regulations, most fuel retailers will need to replace at least one dispenser system to sell intermediate ethanol blends. According to estimates from EPA and several industry associations, installing a new dispenser system compatible with intermediate ethanol blends will cost over $20,000.40 According to some industry association representatives, a typical fuel retailer has four dispensers and, therefore, would face costs exceeding $80,000 to upgrade an entire retail facility.
  • According to EPA and industry estimates, the total cost of installing a new single-tank UST system compatible with intermediate ethanol blends is more than $100,000. In addition to the high costs, some industry association representatives stated that fuel retailers who have recently installed new UST systems may be particularly reluctant to replace them, especially since UST warranties can last for several decades, and the useful life of these systems can be even longer.

A second potential challenge consists of financial and logistical limitations on the types of fuel a retailer may be able to sell. According to representatives from several industry associations, most retail fueling locations have only two UST systems, and many fuel retailers cannot install additional UST systems due to space constraints, permitting obstacles, or cost.42 Currently, fuel retailers with two UST systems can sell 3 grades of gasoline: regular, midgrade, and premium. To accomplish this, they typically use one of their tanks to store regular gasoline and the other for premium, both of which are pre-blended with up to 10% ethanol. They then use their dispensing equipment to blend fuel from both tanks into midgrade gasoline. If fuel retailers with two UST systems want to sell intermediate ethanol blends, however, they may face certain limitations. For example, fuel retailers with two UST systems who want to sell regular, mid-grade, and premium gasoline could use the tanks to store regular and premium grades of an intermediate blend, such as E15. However, since EPA has only allowed E15 for use in model year 2001 and newer automobiles, these retailers would not be able to sell fuel to consumers for use in older automobiles and non-road engines.

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