The key reason to construct dedicated pipelines, rather than using existing petroleum pipelines, is primarily related to the corrosion potential of ethanol. If water contaminates a batch of gasoline, it will quickly separate and can be easily drained off. Not the case for ethanol; water is very soluble in ethanol enhancing the potential for corrosion. In addition, if ethanol were transported via existing pipelines there is concern that it could contaminate some petroleum products that cannot tolerate even trace amounts of ethanol (e.g. jet fuel). A dedicated pipeline could resolve these issues and could drastically reduce the cost and energy expenditures currently associated with transporting ethanol via railcars and trucks.
Coincidentally, a Brazilian consortium, led by state-owned Petrobras, has announced their intention to construct a massive ethanol pipeline. According to a posting on Green Car Congress, the pipeline would run from the central state of Goias to a refinery in Paulinia, near Sao Paulo, through Brazil’s main producing centers of sugar cane and ethanol. With a cost of $226 million, the pipeline will be capable of transporting 4 billion liters of ethanol per year (~1 bgy). Brazil has plans to export ethanol to Venezuela, Nigeria (apparently these countries don't have enough oil), and possibly China, South Korea, India, and the US (what about the import tariff?).
If one considers the basket of state and federal policies that currently prop up the U.S. ethanol industry, it is obvious that the construction of a dedicated ethanol pipeline is very risky . The existing tax incentives and subsidies have expiration dates that may or may not be extended. The Renewable Fuel Standard (RFS), which was increased in December with the passing of the EISA bill, will require a huge expansion of the biofuels industry (36 billion gallons of biofuels by 2020). The RFS includes provisions requiring the mix of fuels to be derived from sources other than starch-based ethanol. Therefore, the center of biofuels production could (and should) shift away from King Corn. The article posted on Magellan’s website states the risk clearly:
"Congressional support and assistance is necessary for a project of this nature given the changing federal policies associated with renewable fuels.”