A $3.5 billion dedicated ethanol pipeline may be extended to South Dakota. POET LLC and Magellan Midstram Partners LP are studying the feasibility of the 1,800-mile pipeline.

“With South Dakota being in the top five of ethanol producing states and having almost a billion gallons of production capacity, that just made sense,” said POET spokesman Nathan Schock. The extended pipline is dependent upon studies addressing technical issues and Congress revising the U.S. Department of Energy’s loan guarantee program, the companies say.

If built, the route would begin in Davison County, S.D. — further west than O’Brien County, Iowa, as originally planned — and deliver the alternative fuel from plants in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to distribution terminals in the northeastern United States.

Magellan has been working with the Association of Oil Pipe Lines for years on how to transport ethanol through a pipeline, said spokesman Bruce Heine. But he added that the biggest challenge is stress corrosion cracking, in which ethanol tends to cause internal cracking of carbon steel pipe more so than gasoline or diesel. Magellan thinks the solution will be a combination of potential additives to help protect the pipe and the use of different welding techniques.

Schock said POET is taking the lead on market analysis for the project, while Magellan is addressing technical and issues. The two are working together on legislative challenges. He added that he hopes for a decision on whether to move forward by the end of year or early 2010.