Editor's Note: This article is 3 in a 5 part series by Alexis Madrigal, coming to us via Spot Us. Read part I here and part II here.

Back in the 1980s, with smog choking American cities, the government decided to tinker with the gasoline hydrocarbon formula to create cleaner burning fuels. The easiest way to do that is to add a little oxygen to the gas. Adding O2 is a little like blowing on a flame: the controlled fire inside your car's engine burns a little more efficiently and thus a little cleaner, reducing toxic air pollutants, carbon monoxide, and ozone.

Spurred by state and Federal regulations but committed to selling the most petroleum they could, oil companies found the cheapest oxygenate they could, a crude-derived chemical called MTBE. Subsequent environmental impact studies determined that MTBE was a groundwater pollutant, and in 1999, then-Governor Gray Davis ruled that all MTBE had to be removed from California's gasoline by the end of 2002 (though the phase out was extended).

That left the state casting around for an alternative way to get extra oxygen into its gasoline blend while maintaining the smog-control benefits of the previous blend, and quick. They settled on ethanol, the only scaleable oxygenate available.

"This actually was a major shift in a lot of different things. The phase out was something extremely rapid. It required [the oil industry] to use the only other oxygenate alternative, which was ethanol," says Rahul Iyer, a founder of the biofuels infrastructure startup Primafuel.

With fascinating symmetry for those familiar with petrochemical farming methods, gas isn't gas without corn. Though the exact formulations are Byzantine, for most intents and purposes, gasoline in California contains at least 5.7 percent ethanol. That has pushed the state's ethanol consumption to our current one billion gallons a year.

So, through the last half-decade, ethanol, by default, has become a necessary part of transportation fuel in the state. In so doing, the state and its oil industry created a perfect test case for the rapid adoption of an alternative fuel in a gasoline market about the size of China's.

But California had and has very little in-state ethanol production. Companies stretching all the way to Illinois had to figure out how to get corn grown and refined in the Midwest to the west coast. Given the speed of the ramp-up, an ad hoc system developed to keep up with the demand. Remember: keeping up with the demand isn't merely academic; you can't sell gasoline if you don't have enough ethanol.

The real action in a shift like this doesn't occur at what oil companies call the upstream, where a fuel is produced; or downstream, where consumers pay for petrol at energy distribution outlets we call gas stations. What had to change was the midstream, the set of interlocking logistics, transport, and storage facilities that push energy in liquid form around the world.

In petroleum logistics, pipelines do much of the transport work and do it cheaply. The same isn't true of ethanol. It can't travel through oil pipelines and building ethanol-only pipelines, at $1-2 million a mile, is too expensive.

Trucks can and do carry fuel into the state, but the majority of ethanol comes to California on trains loaded with ethanol fuel cars. That's because rail cars are simply cheaper. Cybus Capital Markets found that tank trucks can cost upwards of 20 cents per gallon transported. Rail rates cut that in half.

For the rail companies, ethanol is not a major marginal strain. As John Risovato of Burlington Northern Santa Fe noted, out of the 10 million total cars his company transports, only 41,000 carloads were filled with ethanol.

The downside to the rail system is that it's logistically more complicated. As laid-out by The Center for Supply Chain Research at Penn State, there are six major transportation steps in between an ethanol refinery and a gas station's storage tanks. Ethanol has to be shipped in rail cars to a rail terminal. The fuel is then transloaded to distribution terminals that store the ethanol. Eventually, these facilities blend the ethanol into gasoline while it's being loaded into trucks. Finally, tank trucks schlep the fuel to your local Mobil or Texaco.

Each rail car holds about 30,000 gallons, so to meet our annual billion-gallon demand, over 90 rail cars worth of biofuel have to enter the state each and every day.

In California, the midstream is dominated by two companies: Kinder Morgan and NuStar. They own most of the terminal facilities, pipelines, and storage locations in the state. That's placed them at the middle of the scramble to ramp up the amount of ethanol flowing into the state.

Burlington Northern Santa Fe Railroad services Kinder Morgan's Lomita Rail Terminal, which provides ethanol for a large percentage of southern California. Lomita is a special ethanol-only terminal. It's the only place in the state that can accommodate so-called unit trains, which are 96-car trains filled exclusively with one product, in this case, ethanol.

Lomita is designed to offload an entire unit train in 24 hours, which reduces the turnaround time for Midwestern producers.

"It might take you thirty-some days to ship a single car," said BNSF's Risovato. "On a unit train, depending on where you're coming from, it's ten to twelve days."

The railroad also gives unit trains a 3 to 4 cent discount per gallon to encourage their use and because the system makes the railroad more efficient overall.

After the Lomita terminal receives the ethanol, it pipes it to a Shell refinery nearby in Carson, California. As Agriculture Online explains, "Shell has refurbished five 65,000-barrel storage tanks to hold ethanol. Those and other improvements made to switch from MTBE to ethanol cost the company $35 million. From there, 100 fuel trucks a day haul ethanol to blenders that supply gasoline to most of the major oil companies in the southern California market."

In northern California, there is no fast-offloading, unit-train capable, ethanol-only terminal. There are just Selby and a smaller facility in Stockton.

Not that Selby is a bad spot. In fact, it's uniquely situated to be an infrastructure hub. It's right on the Bay, on the ocean end of the Carquinez straight, so it's got marine access. I-80 rumbles through Crockett a mile east and a Union Pacific rail line comes right through the area. You couldn't ask for better access to the nation's transportation systems. That's why NuStar sited its three million gallon tankage facility smack dab where old Tormey used to be.

But Selby wasn't designed to bring in large amounts of biofuel. It was designed to bring in crude. Selby can only accommodate about 30 cars of ethanol at a time and it still takes them a day to unload them. Even with imports from Brazil or shipped from down south, the ethanol distribution infrastructure in northern California is not stable.

"In the northern California area, your largest tank farm is Selby and I know they have problems serving it," Risovato said. "It's been embargoed several times. It got congested and they had to meter the loads in until it got decongested."

McDonald acknowledged that his site sometimes had difficulties bringing ethanol into the terminal.

"It can get backed up, but it's mostly railroad problems, mechanical problems," McDonald said.

"Metering the loads" causes delays. And with the ethanol infrastructure in its still-nascent state, there isn't a lot of room for error.

The system that's developed, according to Kinder Morgan's Mahon, has little slack. Ethanol is used as quickly as it comes into the state.

"The petroleum world has several backup systems," Mahon explains. "Ethanol doesn't have multiple backup systems. If anything breaks down in that supply chain, all of a sudden you're trucking from Arizona."

The value that would accrue to the company that stabilized (and thereby dominated) the northern part of the state's market has pushed Kinder Morgan, Pacific Ethanol, and Primafuel to look at building an ethanol unit train terminal in the Bay Area.

"In general, the market is serviced by what would be characteristic of any startup or new business. It really is a hand-to-mouth system," Mahon said. "It is an emergency fire drill going on every day. All you need is a couple of [rail] cars to get lost or a couple of trucks to not get a driver and you're not moving product."

When "product" means gasoline in the world's third-largest gasoline market, that's a major energy security risk.