Two US oil products pipeline companies said Tuesday they have launched an assessment on whether to build what would be the first dedicated ethanol pipeline from agriculture centres in the Midwest to the heavily populated US Northeast. The companies, Magellan Midstream Partners LP and Buckeye Partners LP, said the proposed pipeline -- with a preliminary cost estimate of more than $3 billion -- would span about 1,700 miles (2,740 km) and take several years to build. The assessment could be completed later this year. US ethanol output capacity has jumped about 45 percent to nearly 8 billion gallons per year since this time last year as Washington offers producers millions of dollars in incentives. The new energy law of late last year calls for the blending of 36 billion gallons per year of biofuels like ethanol by 2022. Todd Alexander, a climate change partner at law firm Chadbourne & Parke LLP, who is not connected with the proposal, said a pipeline from the Midwest could lower costs for both ethanol producers and consumers because sending fuel by pipe is cheaper than sending it by truck, rail or barge -- the current methods for transporting ethanol from the Midwest to the coasts. Pipelines have struggled to obtain new right-of-ways in recent years amid community opposition, but the proposed ethanol pipeline would hook into an existing Buckeye right-of-way in Indiana that runs to Linden, New Jersey, according to a map of the proposed project. Bruce Heine, a spokesman for Magellan, said obtaining right-of-ways from the agricultural states to Indiana should be feasible as it could benefit farmers. He said the pipeline could be built within three or four years, once the companies made a decision. Several hurdles would need to be cleared first, such as securing federal loan guarantees and ensuring that ethanol was taxed in the same way oil products are, he added. In addition, experts have long said ethanol may corrode pipelines because it absorbs water. The companies are engaging in research with the US Department of Transportation and pipeline industry groups into ethanol stress corrosion cracking on fuel ducts, Heine said. Critics of ethanol made from corn say making the fuel has the potential to deplete water supplies and that it does not yield much more energy output than it takes to grow and distill. Heine said the pipeline could also carry supplies of cellulosic ethanol, a new fuel expected to be made from non-food sources. Upon completion, the pipeline could have the capacity to supply about 4.5 billion gallons of ethanol per year, gathering ethanol from production facilities in Iowa, Illinois, Minnesota and South Dakota to serve terminals in major markets such as Pittsburgh, Philadelphia and New York, the companies said. (Additional reporting by Lisa Lee in New York; Editing by Walter Bagley) Story by Timothy Gardner REUTERS NEWS SERVICE