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Biofuel demand adds to storage capacity woes

Continued consumer demand for ethanol and other biofuels is putting pressure on the storage and terminaling sector of the oil and gas industry to handle the growing need for storage capacity.

“We are nearing, or at, capacity,” said Dave Doudna of Colonial Pipeline at the Platts Refined Products Storage and Transportation conference October 15-16 in Houston TX.

Doudna, Wes Steely of Chicago Bridge and Iron, Chuck Travelstead of Brown-Minneapolis Tank, Bruce Heine of Magellan Midstream Partners, Graham Noyes of Imperium Renewables, Barry Schaps of VeraSun Energy, Angela Caddell of Burlington Northern Santa Fe Railway (BNSF), Brian Ward of CSX Transportation, and Gregory Binion of Kirby Inland Marine LP discussed biofuels, particularly ethanol.

Doudna pointed out that fuels such as ethanol have to be stored in dedicated tanks, which further takes away capacity for other products. Biofuels demand have resulted in storage and terminaling managers seeking ways to develop and improve infrastructure to meet the situation--and that's not easy, many of the speakers at the conference agreed. Cost is always a factor in facility upgrades and expansion, and new construction, but new construction plans always bring permitting challenges. “Air permit restrictions are a huge issue today,” Doudna added.

Perfect storm

Steely said: “The perfect storm is brewing. Actually, it is already here.” He cited the growing demand for new construction, rising steel costs, and refiners giving over storage to terminal facilities. There are labor difficulties in finding skilled workers who are willing to be away from home for the time required for construction projects. “All employee costs are up, including those for professionals,” he said. The situation is worldwide, he added.

In order for projects to be completed in a timely manner, Steely advised storage and terminaling managers to think 30-to-60 months in advance and prepare for contracts that may be two-to-three years out.

Travelstead warned about storage tank stress corrosion cracking, citing 20 examples uncovered in the United States. Cracking is driven by several factors, including steel properties, the environment, stress components, and reaction to various products, including fuels. The condition is seen at distribution and blending facilities in their tank floors, floating roofs and seal components, and at the lower shell of the tank. Lap welds appear more vulnerable than butt welds.

He warned that visual inspections often fail to reveal the problems and recommended using leak detection systems and consulting the American Petroleum Institute 939E standard for guidance. New standards will be published at the end of 2007, he added. He recommended tank coatings that are appropriate for each product, applied five-to-eight feet high, and understanding moisture relationship and oxygen level, as well as minimizing cold blending and installation stresses.

Pipeline challenges

Another problem arises for ethanol in that it cannot, to date, be shipped in pipelines because of product segregation issues. “We believe it is possible, but we don't have the solution today,” Doudna said.

However, he pointed out that similar concerns were raised when ultra low sulfur diesel mandates were introduced, but they were allayed when the industry stepped up to the plate and satisfied the requirements. “It turned out to be a non-issue,” Doudna said.

Another example of maintaining storage capacity was presented by Heine, who addressed Magellan's efforts at its New Haven, Connecticut, facility. A move was made by the city to establish a ferry from New Haven to Long Island, New York, which would have shut down 17 storage tanks at the Magellan facility located at the site. “The city did not understand the area's energy needs,” he said.

Through successful diplomatic negotiations with the city and the state legislature, the company was able to show the need for heating oil and biofuel storage in order to supply the Northeast. The result was state legislation that requires such actions by a city and other public entities to be processed through state agencies before they are approved.

Noyes, an ethanol processor and shipper in Washington noted that the company invested about $80 million to $85 million in the plant at Grays Harbor. The company was successful in obtaining permits for the plant and used standards related to diesel in the construction. Taken into consideration were seismic issues, an environmental green zone, and steams and waterways. He emphasized the importance of having political support for the project, both local and federal.

Schaps said: “It is an issue of collaboration. We need cooperation between all modes (involved in ethanol production and transportation). He estimated one billion gallons of ethanol will be available by 2009.

While concerns have been expressed about ethanol production being centered in the Midwest away from the nation's largest population areas, he noted that the facilities are built near the agriculture sources for feedstocks because it is much less expensive to ship finished product than the raw ingredients. About 30% of the finished product is shipped by truck, 60% by rail, and 10% by barge, Schaps said. One method of shipping efficiency is accomplished with unit trains comprised of 75 to 120 railcars.

Complications did arise when the price of ethanol dropped in mid-year and the price of feedstocks rose, which caused the cessation of some production, he said.

Rail handling

Caddell said ethanol production is one of the largest growing segments for BNSF, but many production facilities do not have access to rail, and markets tend to be congested. By using unit trains, the railroad is able to minimize stops and interim handling, she added.

Ward said CSX sees the Southeastern United States as the company's next frontier for ethanol. CSX's Transflo Corp today operates 14 transloading facilities that handle ethanol. “CSX Transportation is committed to biofuels,” he said. He advised producers and storage facilities to consider building speculation tanks in order to be in place when more demand drives the market.

Turning to waterways, Binion said barge capacity has been impacted because of additional fertilizer shipments to the Midwest where it is used on crops for ethanol feedstock. The barge sector, as well as the storage sector, faces growing pains due to similar challenges for construction. Barge builders are booked, some into 2010, he said. Nevertheless, the sector is looking at the biofuel market and will participate where practical, he said.

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