Integrating Ethanol

New state and federal mandates requiring 10 percent ethanol in reformulated gasoline will create big challenges for supply chain managers, according to Penn State experts.

Ethanol can be moved by pipeline, but not when it's mixed with gasoline, explains Evelyn Thomchick, associate professor of supply chain management. "It must have separate transport and storage until the end of the supply chain when it can be blended."

In practice, that means transport by rail—and that will require new infrastructure. "Since there was not a need for rail access to petroleum storage and distribution facilities before the induction of ethanol, most storage and distribution facilities are located along pipelines, not rail lines," write Thomchick and co-authors Dawn Russell and Kusumal Ruamsook in a study published in Transportation Journal.

Cost-effectively managing the logistics of ethanol, they argue, will call for significant investment in rail service: rail spurs, unloading equipment, and piping. Connecting ethanol production plants, most of which are in the Midwest, with storage and distribution facilities on the East and West Coasts will require building hubs to receive and consolidate shipments.

Current storage tanks, piping, and blending equipment will have to be converted for ethanol use only—or new infrastructure will have to be installed. "A new 25,000-barrel storage tank costs $450,000 and takes 14-24 months to build," the researchers say.

In addition, says Russell, assistant professor of supply chain management, farmers will need to be consulted. "The farmers understand what the issues are going to be with the agricultural side of ethanol."

"If you're a logistics manager dealing with petroleum, she says, "I think the biggest takeaway is that rail and farmers are now an important part of your supply chain."

Evelyn Thomchick, Ph.D. (eat1@psu.edu), is associate professor of supply chain management, Dawn Russell, Ph.D. (dmr28@psu.edu), is assistant professor of supply chain management, and Kusumal Ruamsook, Ph.D. (kir105@psu.edu), is visiting scholar at the Center for Supply Chain Research, all in the Smeal College of Business.

Last Updated June 15, 2010