1 Ethanol Transportation & Distribution Governors Ethanol Coalition Mike Mears Senior Vice President

2 Presentation Outline Introducing Magellan Midstream Partners (formerly Williams Energy Partners / Williams Pipeline) Our experience with the distribution of ethanol The prospect of transporting ethanol and ethanol blends via pipeline Commercial opportunities Technical Challenges What is Stress Corrosion Cracking? Industry research Congressional action

3 Magellan Midstream Partners, L.P. (NYSE: MMP) Petroleum Products Pipeline System Magellan Midstream Holdings, L.P. (NYSE: MGG) Magellan’s Structure A Publicly Traded Partnership Marine and Inland Terminals Ammonia Pipeline System

4 Magellan’s Asset Portfolio Petroleum products pipeline system Longest pipeline in U.S. (8,500 miles) Access to greater than 40% of refinery capacity in continental United States Total of 81 petroleum product terminals in 22 states 45 terminals connected to Magellan Pipeline, 27mm barrels storage Marine terminals 7 locations with 22 million barrels storage Inland terminals 29 locations with 6 million barrels storage; connected to 3rd party pipelines Ammonia pipeline system (1,100 miles)

5 Magellan Pipeline – Refined Products Significant Market Presence Oklahoma, Missouri, North Dakota, Kansas, Nebraska, Iowa, Minnesota and South Dakota

6 Pipeline Fundamentals Pipelines are the most cost efficient and safest method of transporting liquid fuels Tariff from Houston to Kansas City about 6 cents per gallon Common Carrier vs. Proprietary Pipeline Magellan’s open stock system Product batching…gasoline / diesel / jet fuel Boutique fuels require incremental infrastructure and creates capacity limitations due to scheduling inefficiencies Today, ethanol is transported via truck, rail, barge and ship. Blending takes place at terminals

7 Ethanol Blending at Terminals We have ethanol blending at 35 terminals today (and planning for more) Ratio Blending Gasoline and ethanol blended proportionally as the blended fuel enters the truck Sequential Blending Ethanol enters the truck first followed by gasoline Ratio & Sequential systems promote quality blends Total ethanol blending infrastructure costs $2 to $3 million per terminal Railcar offloading infrastructure substantially higher

8 Ethanol & Pipelines As domestic and international ethanol production continues to increase, the economic viability of domestic pipeline shipments increase as well The introduction of ethanol into the pipeline system brings challenges and opportunities Commercial opportunities include the potential shipment of 10% ethanol blends as well as fuel grade ethanol The challenge is related to the potential incompatibility of fuel grade ethanol with the existing pipeline infrastructure Unknown short and long term risks to the operation and system integrity of the pipeline Urgent need to study the viability of transporting low level ethanol blends (10%) via our existing pipeline system

9 Technical Issues Technical factors regarding transportation of ethanol by pipeline Moisture Materials compatibility Stress Corrosion Cracking (SCC) SCC is the formation of brittle cracks in a material that occurs as a result of corrosion processes and stress SCC historically found in pipelines and tanks that are in dedicated ethanol service Cracks develop around steel construction with high bends Welds with high stress Historical data suggests SCC appears at distribution terminals (not ethanol plants)

10 SCC Example – Magellan’s Omaha Terminal Leak Photo

11 Ethanol Transportation via Multi- Products or Dedicated Pipeline Other important factors Economics A pipeline from the Midwest to the east coast could be a multi- billion dollar project Pipeline transportation rates for a Midwest to East/West Coast pipeline would be competitive with rail transportation rates. A 12” line could move up to 100,000 barrels per day (4.2 million gallons per day) Commercial Viability Our ability to secure long-term shipper commitments

12 Ethanol Pipeline Logistics Individual production facilities are small relative to volumes necessary to support a pipeline Average ethanol plant produces 3,417 barrels per day* Aggregation facility of up to 100,000 barrels per day (supply from 30 average size ethanol plants) Distribution terminals at the terminus of the pipeline Regulatory Authority Which federal agency will have oversight authority over ethanol pipelines? * 123 ethanol plants with billion gallons of capacity Renewable Fuels Association 7/23/07 Ethanol Production

13 Study Underway Association of Oil Pipelines (AOPL) and the API working with the Pipeline Research Council International (PRCI) Mulitple research projects underway to resolve the technical issues associated with pipelining ethanol Short term (6 to 12 months) - what level of ethanol blends are compatible with existing pipeline systems with little or no modification Long term (36 to 48 months) – identify the environmental factors that produce SCC in ethanol pipelines and terminals SCC susceptibility in existing batched pipeline systems Design requirements for new, dedicated ethanol pipelines

14 House and Senate Energy bills include a provision which provide funds to study the feasibility of an ethanol pipeline The Senate Finance Committee passed its Energy Tax title which include a provision to allow the transportation of ethanol and biodiesel blends as “qualifying income” for publicly traded partnerships Important to maintain partnership status Congressional Action

15 Pipelines remain the most reliable, safe and economic mode to transport large volumes of liquid energy Because of the increasing domestic and international ethanol production base, pipelines may provide an economic method of transportation for ethanol SCC challenges must be resolved Magellan is actively involved with other pipeline industry leaders in finding technical solutions AOPL and API members are funding research to address SCC Congress may provide funding for additional study Transportation of ethanol blends via pipeline may be feasible in the short term Would eliminate the need for costly rail offloading infrastructure at terminals Takeaways

16 Magellan Midstream Partners, L.P. (NYSE: MMP) Magellan Midstream Holdings, L.P. (NYSE: MGG)