LNG-powered trains could arrive by 2017

LONDON: LNG-powered locomotives could be in widespread use on North American railroads as early as 2016 or 2017, according to Railway Age, one of the industry’s leading technical publications — which is far sooner than most energy analysts expect.
Burlington Northern Santa Fe (BNSF) railroad, owned by Warren Buffett’s Berkshire Hathaway, made headlines earlier this year when it announced it would begin experimenting with an LNG-fueled locomotive and might in future switch a large proportion of its train fleet from diesel to cleaner-burning and cheaper natural gas.
In 2011, the railroads consumed just over 3 billion gallons of distillate fuel oil, almost 5.5 percent of the total diesel consumption in the United States.
Oil analysts have been openly skeptical about how far and how quickly natural gas could displace diesel as a transportation fuel.
The cost of retrofitting compression engines to run on a mix of natural gas and diesel, and the need to build an extensive refueling infrastructure, are a major barrier, especially when no one can be certain how long gas prices will remain at the current low level.
Fuel accounts for around 30 percent of operating expenses on the major Class 1 railroads, roughly as much as they spend on compensation and other benefits, and far larger than any other operating cost. BNSF spends more than $1 billion every three months buying fuel, according to the company’s quarterly performance report.
Switching to LNG could generate savings of up to $200,000 per year per locomotive, and slash the total fuel bill, but each LNG fuel tender could cost around $1 million, so the railroads would have to trade off lower operating costs against higher capital charges.
Switching to LNG would be a major investment decision and bet that the price of gas will remain much lower than oil for the next decade.
The rail industry may, however, be closer to making the switch than many oil analysts realize. “Test programs at BNSF and Union Pacific are expected to start in the fourth quarter,” according to Railway Age.
The Association of American Railroads (AAR) and its Transportation Technology Center are already developing technical specifications for an industry-standard LNG fuel tender, Railway Age reported last month.
LNG or compressed natural gas is now used in most new vehicles ordered by mass transit operators and waste collection firms in the United States. Major road transport companies are starting to roll out LNG-fuelled trucks on selected routes.
At sea, many of the major oceangoing LNG transporters use boil-off gas to fuel their engines, and other LNG-fueled vessels are being built.
Shell, which is as much a gas company as an oil one, is making a strategic effort to support the broader take-up of LNG in the transport system.
Like other systems with large sunk costs and expensive infrastructure, it will be hard to dislodge diesel from its dominant position in heavy transportation.
But the technical work now under way on the railways and in other forms of transportation implies the system may be nearing a tipping point. If the price gap between oil and gas remains, widespread switching appears inevitable and could be apparent within the next five years.
— John Kemp is a Reuters market analyst.
The views expressed are his own.