IRFA says Bakken oil pipeline “raises red flags”

Iowa Renewable Fuels Association says Bakken Oil Pipeline “Raises Red Flags”

Iowa Citizens for Community Improvement members discover July 17 IRFA memo after filing a public information request with Governor Branstad’s office

IRFA memo says pipeline proposal raises red flags because Big Oil enjoys unfair taxpayer subsidies and could use eminent domain to confiscate valuable Iowa farmland and turn it over to a private, out-of-state, for-profit corporation

To view an original copy of the IRFA memo as provided to the governor’s office, click here


TO:                  Iowa elected leaders

FROM: Iowa Renewable Fuels Association

DATE:  July 17, 2014

RE:       Iowa Oil Pipeline Proposal Raises Red Flags

On July 10, 2014, The Des Moines Register reported Texas-based energy company Energy Transfer Partners L.P. is proposing “to build an 1,100 mile underground pipeline to transport a highly volatile type of crude oil from North Dakota’s Bakken oil fields through 17 Iowa counties en route to Illinois.”

Since then, a number of other articles have been written on the topic, and several Iowa leaders have weighed-in indicating they need to learn more about the proposal before taking a position on it.

While IRFA has not taken a position on the oil pipeline proposal, the initial reporting on this issue has raised several red flags that need to be carefully considered in the days, weeks and months ahead.

Much of the print has focused on whether it would be appropriate for the builder—a private, out-of-state energy company—to use eminent domain to acquire easements to construct the pipeline through valuable Iowa farmland.  This is certainly a very important and delicate point to consider.

Another important question to contemplate is whether it is good policy for Iowa to allow a private, out-of-state energy company to exploit the petroleum industry’s significant industry-specific federal policy benefits in order to help provide a marketplace distribution and cost advantage to Bakken crude oil over higher blends of renewable fuels.

In fact, this pipeline proposal highlights two specific ways in which the federal policy deck is stacked in favor of petroleum:

  • Federal pipeline loan guarantee program—As a petroleum pipeline, the Energy Transfer Partners L.P. project would be eligible for a federal pipeline loan guarantee.  A similar ethanol pipeline project would not be eligible for a federal pipeline loan guarantee. Case in point: plans for an 1,800 mile ethanol pipeline from Sioux Falls, SD, to New York Harbor were shelved in 2010 due to the fact that a federal loan guarantee could not be secured for a pipeline that was shipping something other than oil and gas.
  • Master limited partnership eligibility—The Texas-based company proposing to build the pipeline, Energy Transfer Partners L.P., is a master limited partnership (MLP).  According to U.S. Senator Chris Coons (D-DE), author of the Master Limited Partnerships Parity Act, “an MLP is a business structure that is taxed as a partnership, but whose ownership interests are traded on a market like corporate stock.  By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects.  These projects get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment.  Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America’s domestic energy sector of the capital it needs to build and grow.”

Federal pipeline loan guarantees and master limited partnerships are two ways in which this Iowa oil pipeline proposal would be significantly advantaged over a similar renewable fuel pipeline project.  These advantages, coupled with the oil industry’s century of subsidies, federal petroleum mandate and fuel distribution monopoly, demonstrate definitively that the federal policy playing field is tilted heavily in favor of oil.

IRFA is not opposed to the construction of oil pipelines or other efforts to lower the price of domestic oil.  However, we do object to the use of oil-specific federal policy benefits to provide cost relief and other marketplace advantages exclusively to the petroleum industry, further disadvantaging Iowa’s homegrown renewable fuels.

As you develop your position on this Iowa oil pipeline proposal, IRFA would ask you consider using this unique opportunity to demand equal status for a renewable fuel pipeline in terms of eligibility for federal loan guarantees and MLPs, and to shine additional sunlight on the significant federal policy advantages enjoyed exclusively by the oil industry.  These points need to be front and center as Iowans consider whether to support this Iowa oil pipeline proposal.

If you have any questions regarding this memo, please call the IRFA office at 515-252-6249.  Thank you for your consideration.

Grant Menke

Policy Director

Iowa Renewable Fuels Association

(515) 252-6249

(515) 321-6290 cell