The ethanol boom has created an infrastructure problem in the United States for which Canada must also prepare.
The problem could, in the second half of the year, put downward pressure on corn prices, and because corn is supporting the whole market, that could affect other grain and oilseed prices too.
All this arises from the nature of ethanol: it absorbs water.
Pipelines usually have moisture and impurities in them that gasoline does not touch. But ethanol would pick up this dirty mixture and contaminate the final ethanol-gasoline mixture.
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For that reason, energy and pipeline companies are reluctant to put ethanol through their existing pipelines.
Instead ethanol moves mostly by train to distribution and storage terminals where it is blended with gasoline.
This system was adequate while ethanol-blended fuel was largely a regional matter, but the United States now has a national mandate for ethanol use.
Ethanol production now equals about four percent of U.S. gasoline demand and production and use is climbing.
About 22.3 billion litres are produced today but with expansions and new plants coming on stream, that number is expected to grow to 30 billion litres by the end of the year and 47 billion litres by 2008.
To use all that ethanol, more consumers will have to buy it and the big population centres in the U.S. are on the coasts, far from the main production region in the Midwest.
An increasing number of business analysts say that the transportation system simply can’t move that much ethanol. The result is a looming glut of the fuel.
But ethanol is a political darling in the U.S. and a couple of stout ethanol proponents want to come to the rescue.
Senators Tom Harkin of Iowa and Richard Lugar of Indiana in March introduced the Ethanol Infrastructure Expansion Act of 2007 that calls for federal money to be allocated to investigate the potential of pipelines to carry ethanol to the east and west coasts. A dedicated ethanol pipeline might be a tough sell because even small pipelines require large volumes of product and even large ethanol plants produce relatively small quantities compared to major petroleum refineries. Dozens of plants would have to co-ordinate their flow to the pipeline. Also, one pipeline executive has estimated the cost of a dedicated ethanol pipeline from the Midwest to the East Coast at $2 billion US.
There is no guarantee that the bill will gain support, but it does get the issue into the debate.
Ethanol industry proponents say the transportation problem is more a bump in the road to prosperity than an industry wrecker. They believe a solution will evolve.
But in the meantime the problem could reduce ethanol prices and lower corn prices somewhat, pressuring the whole grain market complex.
Canada’s ethanol capacity is growing but it is still a drop in the bucket compared to the
U.S. Another difference is that the largest population centre in Canada, southern Ontario, is close to corn production suitable for ethanol.
Nevertheless, this transportation issue will have to be addressed in the context of Vancouver and the Atlantic provinces.
The transportation industry is paying attention.
In April, the Railway Association of Canada held a conference on ethanol transportation. On April 30, Canadian National Railway announced an alternative fuels strategy highlighting its ability to supply raw material to biofuel plants in the Midwest and the Canadian Prairies, and to carry their production to end users.
