Ethanol Transportation & Distribution New York Energy Forum Mike Mears Senior Vice President

1. Ethanol Transportation & Distribution New York Energy Forum Mike Mears Senior Vice President mike.mears@magellanlp.com 918 574 7400

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 • Industry research • Congressional action

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

4. Magellan’s Asset Portfolio • Petroleum products pipeline system • Longest contiguous 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 (about 750 miles) • Common Carrier vs. Proprietary Pipeline • 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 potential 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 • Existing dedicated neat ethanol systems have experienced pipeline failures • Urgent need to study the viability of transporting low level ethanol blends (10%) via our existing pipeline system (Industry has no operating experience)

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 welds with high stress or tight bends • Historical data suggests SCC appears at distribution terminals (not ethanol plants)

10. SCC Example – Magellan’s Omaha Terminal Leak Photo

11. Ethanol Transportation via a Dedicated Pipeline • Other important factors • Economics • A pipeline from the Midwest to the east coast could be a multi-billion dollar project • 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 • Ability to secure long-term shipper commitments

12. Ethanol Pipeline via a Dedicated Pipeline Ethanol Production • 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 6.444 billion gallons of capacity Renewable Fuels Association 7/23/07

13. Study Underway • Association of Oil Pipelines (AOPL) and the API working with the Pipeline Research Council International (PRCI) • Multiple 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. Congressional Action • House and Senate Energy bills and the House Farm bill includes 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

15. Takeaways • 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

16. Magellan Midstream Partners, L.P. (NYSE: MMP) www.magellanlp.com Magellan Midstream Holdings, L.P. (NYSE: MGG) www.mgglp.com