Changing Locomotion in Midstream: California’s Ethanol Mandate (Part 3)
Editor’s note: Part three of Alexis Madrigal’s series on California’s ethanol mandate focuses on the challenges of transporting the fuel.
III. How to Move A Billion Gallons of Fuel from Iowa to California
Back in the 1980s, with smog choking American cities, the government decided to tinker with the gasoline hydrocarbon formula to create cleaner burning fuels. The easiest way to do that is to add a little oxygen to the gas. Adding O2 is a little like blowing on a flame: the controlled fire inside your car’s engine burns a little more efficiently and thus a little cleaner, reducing toxic air pollutants, carbon monoxide, and ozone.
Spurred by state and Federal regulations but committed to selling the most petroleum they could, oil companies found the cheapest oxygenate they could, a crude-derived chemical called MTBE. Subsequent environmental impact studies determined that MTBE was a groundwater pollutant, and in 1999, then-Governor Gray Davis ruled that all MTBE had to be removed from California’s gasoline by the end of 2002 (though the phase out was extended).
That left the state casting around for an alternative way to get extra oxygen into its gasoline blend while maintaining the smog-control benefits of the previous blend, and quick. They settled on ethanol, the only scaleable oxygenate available.
“This actually was a major shift in a lot of different things. The phase out was something extremely rapid. It required [the oil industry] to use the only other oxygenate alternative, which was ethanol,” says Rahul Iyer, a founder of the biofuels infrastructure startup Primafuel.
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With fascinating symmetry for those familiar with petrochemical farming methods, gas isn’t gas without corn. Though the exact formulations are Byzantine, for most intents and purposes, gasoline in California contains at least 5.7 percent ethanol. That has pushed the state’s ethanol consumption to our current one billion gallons a year.
So, through the last half-decade, ethanol, by default, has become a necessary part of transportation fuel in the state. In so doing, the state and its oil industry created a perfect test case for the rapid adoption of an alternative fuel in a gasoline market about the size of China’s.
But California had and has very little in-state ethanol production. Companies stretching all the way to Illinois had to figure out how to get corn grown and refined in the Midwest to the west coast. Given the speed of the ramp-up, an ad hoc system developed to keep up with the demand. Remember: keeping up with the demand isn’t merely academic; you can’t sell gasoline if you don’t have enough ethanol.
The real action in a shift like this doesn’t occur at what oil companies call the upstream, where a fuel is produced; or downstream, where consumers pay for petrol at energy distribution outlets we call gas stations. What had to change was the midstream, the set of interlocking logistics, transport, and storage facilities that push energy in liquid form around the world.
In petroleum logistics, pipelines do much of the transport work and do it cheaply. The same isn’t true of ethanol. It can’t travel through oil pipelines and building ethanol-only pipelines, at $1-2 million a mile, is too expensive.
Trucks can and do carry fuel into the state, but the majority of ethanol comes to California on trains loaded with ethanol fuel cars. That’s because rail cars are simply cheaper. Cybus Capital Markets found that tank trucks can cost upwards of 20 cents per gallon transported. Rail rates cut that in half.
For the rail companies, ethanol is not a major marginal strain. As John Risovato of Burlington Northern Santa Fe noted, out of the 10 million total cars his company transports, only 41,000 carloads were filled with ethanol.
The downside to the rail system is that it’s logistically more complicated. As laid-out by The Center for Supply Chain Research at Penn State, there are six major transportation steps in between an ethanol refinery and a gas station’s storage tanks. Ethanol has to be shipped in rail cars to a rail terminal. The fuel is then transloaded to distribution terminals that store the ethanol. Eventually, these facilities blend the ethanol into gasoline while it’s being loaded into trucks. Finally, tank trucks schlep the fuel to your local Mobil or Texaco.
Each rail car holds about 30,000 gallons, so to meet our annual billion-gallon demand, over 90 rail cars worth of biofuel have to enter the state each and every day.
In California, the midstream is dominated by two companies: Kinder Morgan and NuStar. They own most of the terminal facilities, pipelines, and storage locations in the state. That’s placed them at the middle of the scramble to ramp up the amount of ethanol flowing into the state.
Burlington Northern Santa Fe Railroad services Kinder Morgan’s Lomita Rail Terminal, which provides ethanol for a large percentage of southern California. Lomita is a special ethanol-only terminal. It’s the only place in the state that can accommodate so-called unit trains, which are 96-car trains filled exclusively with one product, in this case, ethanol. Lomita is designed to offload an entire unit train in 24 hours, which reduces the turnaround time for Midwestern producers.
“It might take you thirty-some days to ship a single car,” said BNSF’s Risovato. “On a unit train, depending on where you’re coming from, it’s ten to twelve days.”
The railroad also gives unit trains a 3 to 4 cent discount per gallon to encourage their use and because the system makes the railroad more efficient overall.
After the Lomita terminal receives the ethanol, it pipes it to a Shell refinery nearby in Carson, California. As Agriculture Online explains, “Shell has refurbished five 65,000-barrel storage tanks to hold ethanol. Those and other improvements made to switch from MTBE to ethanol cost the company $35 million. From there, 100 fuel trucks a day haul ethanol to blenders that supply gasoline to most of the major oil companies in the southern California market.”
In northern California, there is no fast-offloading, unit-train capable, ethanol-only terminal. There are just Selby and a smaller facility in Stockton.
Not that Selby is a bad spot. In fact, it’s uniquely situated to be an infrastructure hub. It’s right on the Bay, on the ocean end of the Carquinez straight, so it’s got marine access. I-80 rumbles through Crockett a mile east and a Union Pacific rail line comes right through the area. You couldn’t ask for better access to the nation’s transportation systems. That’s why NuStar sited its three million gallon tankage facility smack dab where old Tormey used to be.
But Selby wasn’t designed to bring in large amounts of biofuel. It was designed to bring in crude. Selby can only accommodate about 30 cars of ethanol at a time and it still takes them a day to unload them. Even with imports from Brazil or shipped from down south, the ethanol distribution infrastructure in northern California is not stable.
“In the northern California area, your largest tank farm is Selby and I know they have problems serving it,” Risovato said. “It’s been embargoed several times. It got congested and they had to meter the loads in until it got decongested.”
McDonald acknowledged that his site sometimes had difficulties bringing ethanol into the terminal.
“It can get backed up, but it’s mostly railroad problems, mechanical problems,” McDonald said.
“Metering the loads” causes delays. And with the ethanol infrastructure in its still-nascent state, there isn’t a lot of room for error.
The system that’s developed, according to Kinder Morgan’s Mahon, has little slack. Ethanol is used as quickly as it comes into the state.
“The petroleum world has several backup systems,” Mahon explains. “Ethanol doesn’t have multiple backup systems. If anything breaks down in that supply chain, all of a sudden you’re trucking from Arizona.”
The value that would accrue to the company that stabilized (and thereby dominated) the northern part of the state’s market has pushed Kinder Morgan, Pacific Ethanol, and Primafuel to look at building an ethanol unit train terminal in the Bay Area.
“In general, the market is serviced by what would be characteristic of any startup or new business. It really is a hand-to-mouth system,” Mahon said. “It is an emergency fire drill going on every day. All you need is a couple of [rail] cars to get lost or a couple of trucks to not get a driver and you’re not moving product.”
When “product” means gasoline in the world’s third-largest gasoline market, that’s a major energy security risk.
Read the previous installments of Alexis Madrigal’s series on California’s Ethanol Mandate
Part 1: How to Take Some Oil out of an Energy System — Fast
Part 2: The Geography of Green
Image credit: Alexis Madrigal (madrigaelic) at Flickr under a Creative Commons license.
Biofuels, most if not all of them, are terrible for the environment, as well as the global food situation.
When you put corn, or soy, or whatever, on trains and into your gas tank, you help to raise ALL food prices and starve those who depend on our corn exports.
Yay biofuels!!!!!
When are they going to get it? Ethanol is a horrible substitute fuel. Petrol based fuels do not erode the food supply and get far better MPG. I agree that we need an alternative but ethanol is not the answer.
@Brittan: I think that’s a little bit sloppy. Ethanol hasn’t been proven to be measurably better for the environment, but that’s not really the point of ethanol. The global food situation, also, is much more about distribution than it is about total resources available to feed human beings.
Right now, the truth about “mobility 2.0″ is that there isn’t actually much that could scale up to meet any decent percentage of our demand for oil. The way I see it, we either throw money at it now or wait until the oil situation gets worse.
Gray Davis used to be the govenor of California. Ethanol wanted in but he opposed. So somehow MTBE was found in the groundwater. Still he resisted. Step two He’s fired (recalled) I wonder who funded that? Moral of the story? Politicians who oppose Ethanol will be recalled. There is more to the Ethanol conspiracy than just that. E85 is the love child of the auto industry and the ethanol industry. GM ’s sudden stewardship of the environment is simply a way to continue to make gas guzzlers thanks to E85 an extremely inefficient fuel. The CAFE standards call for all car companies to achieve an average MPG for all vehicles. I believe the most recent number is 27 MPG. Well if you make the biggest money off of 10 miles per gallon SUV’s you would hate to say good bye to them wouldn’t you?
The CAFE standards has a loophole, that being that an E85 vehicle operating on E85 miles per gallon are ONLY figured against the actual amount of gasoline in the blend (15%) if you divide 100% fuel by 15% gasoline you get the multiplier to the mpg (666) therefore a gas guzzling 10 MPG SUV is given credit for 66.6 MPG. If you sell one SUV like this you can have 5 vehicles only achieving 20 MPG and this gas guzzling SUV and you average more than 27 MPG overall while not one of their vehicles really met the standard.
GM is not the only one taking advantage of this free ride Ford and Chrysler are too. The big three are heading down the toilet and this is just their hands clinging to the rim.
Insightful article, Alexis, thank you. I’ll have to catch up on the previous two. Even the critics should be aware that ethanol will not go away anytime soon. It’s ironic that the world’s leading force for advancing environmental protection is way behind in producing biofuels. But that’s going to change soon. The state’s Low Carbon Fuel Standard targets, alternative (and renewable) energy goals, and other laws and regulations virtually all point to biofuels like ethanol as about the only way to attainment. While corn (and molasses, in a pinch) is the source today, public and private sector entities are pushing hard to find the right path to cellulosic and enzyme-based fuels. It’s vital that we look at the next 20 to 40 years with optimism that Californians will establish an in-state production base, using its vast supply of agricultural and municipal waste, forest byproducts, and drought-tolerant (non-food) crops to produce lots of biofuel. It makes sense, will create jobs, reduce reliance on foreign sources of energy, and sustain mobility.
Folks, you’re missing the point. This article is about ethanol used as an oxygenate for smog reduction. Whether or not there’s an “ethanol conspiracy”, once MTBE was shown to be a vicious carcinogen, California didn’t have any other realistic choice but to use ethanol.
The arguments against corn-based ethanol as a bio-fuel are well made. But they’re beside the point in a discussion of oxygenates: the choices are Tetra Ethyl Lead (the American Original), Methyl Tertiary Butyl Ether–MTBE, or ethanol. Ethanol is by FAR the least harmful.
Every gallon of gasoline or diesel fuel you buy is heavily subsidized, even while oil companies make record breaking multi-billion dollar profits. The subsidies we pay on OIL BASED fuel is 6 times higher than what we pay on ethanol and biodiesel. Our economy is vulnerable and subject to disruption, because over 65% of our fuel is made from imported foreign oil, which we pay for mostly with IOUs. On our $10 Trillion National Debt and our yearly $750 Billion Trade Deficit, we pay interest to the privately owned Federal Reserve Corporation, interest collected by the IRS at tax time. This debt is accumulating at a rate we cannot sustain.
The U.S. floats a huge trade deficit with oil producing countries. This year our foreign oil trade deficit will be about $500 Billion in additional consumption debt. Since our money is backed by NOTHING, we pay for deficit foreign oil with IOUs. They trade them in for American stocks, real estate, and Government Bonds, which we pay interest on. If we continue to trade away our assets and go into debt to buy foreign oil, generations will be enslaved by the Federal Reserve, and foreign oil producing countries will own our assets.
AMERICANS ARE GOING INTO DEBT TO BUY FOREIGN OIL. When you buy gasoline or diesel fuel, there is a HIDDEN COST. When tax time comes around, you will also pay floating interest on up to 60 percent of the fuel you bought – on the portion that was made from imported oil and paid for with a debt instrument. Buy gasoline made with foreign oil, and you will be paying floating interest on up to 60% of it. Buy domestically produced ethanol or bio-diesel, and pay zero interest. Eliminate foreign oil entirely, and you will be energy independent.
Besides reducing Debt Consumption, there are other good reasons to support domestic bio-fuels. A Merrill Lynch study concludes that we save 15% at the pump with cheaper ethanol blended into our gasoline. This year, that will save us about $70 Billion. The biofuels industry is a brightspot in our economy. States that have well-developed ethanol industries, like Iowa and Nebraska, now have cheap fuel and huge budget surpluses. Subsidizing ethanol and biodiesel creates jobs, stimulates our economy, and generates County, State, and Federal tax revenue. Money back in your pocket. Do the math. We are now spending more than $250 Billion a year to protect wealthy oil war interests abroad. Add that to the price of your gasoline, diesel fuel, and your airline ticket. Would you rather pay a price fixing Cartel and hostile foreign governments for your fuel? Or would you prefer to support the American Farmers who feed you?
[...] Part 3: How to Move A Billion Gallons of Fuel from Iowa to California [...]
Does Pickins have a point with his liquefied natural gas and wind power play? Is there another solution in the offing? If the U.S. had chosen to be a moral people, and leaving Iraqi oil alone, and following Al Gore, decided to develop the South Western deserts, with the technology of the times - solar/thermal-molten sodium - electricity installations, for the same amount of money as that war cost, ($650 Billion), today, we would be tapping into the largest, renewable, sustainable, energy source the world has ever known. It would have paid every energy bill in the U.S.A. for maintenance fees only - FOREVER! It would be equivalent to an oil field that can NEVER run dry! Low cost electric power, and storeable hydrogen gasoline replacement from the electricity, for all!
After the millions of murders, and $650 billions of dollars, borrowed from our children’s futures and pissed away, with thousands of our own and others maimed and disfigured for life, millions of families utterly destroyed, ours and theirs, we are no closer to Iraqi oil production than the Iraqis are!
The next time you hear a blithering idiot spoiled brat, drunken, drug addicted, sociopath, rich Arabic saber dancing daddie’s boy oilman, stand at a microphone and threaten YOUR safety with someone ELSE’S weapons, remember what you lost America, remember, and weep! (also see http://www.sciam.com/article.cfm?id=a-solar-grand-plan)
Corn fuel ethanol stinks