• 26 Jan 2015

In the middle of the 20th century, the process of dieselisation saw steam trains ousted by diesel locomotives. This article explores the likelihood of LNG ousting diesel. Progress has so far proved fairly slow with various technical and regulatory challenges to be faced. However, with the benefits financially, and environmentally, appearing to be so significant, it seems almost inevitable that at some point LNG will enter the rail market.

There are environmental advantages to switching to LNG, with reduced emissions of NOx, CO2 and particulate matter, and in some cases sulphur. However, the main benefit and reason for seeking to change is financial. Fuel forms a significant part of the operating costs of locomotives. Burlington Northern Sante Fe (BNSF), owned by famous investor Warren Buffett’s Berkshire Hathaway, which operates one of the largest railroad systems in North America, spent over $4.5 billion on fuel in 2013. This represented over 29% of its total operating expenses ($15.4 billion). Oil is typically far more expensive than natural gas therefore, given the amount spent on fuel, it is clear why a switch to LNG powered locomotives is being considered; albeit not for the first time. Even at current prices, with oil falling dramatically, oil is far more expensive than natural gas. At the time of writing WTI was valued at $49/bbl. Meanwhile, natural gas at Henry Hub costs $2.90/mmbtu. Converting the cost of WTI to mmbtu, using a conversion factor of 5.80 mmbtu per barrel, the price is $8.44/mmbtu – 2.9 times greater than the cost of gas at HH [1]. This current factor is less than EIA used in their reference case analyzing the payback which assumed crude oil prices would range between 3.2 and 3.4 times higher than natural gas prices to 2040, which would limit or slow the savings, given the cost of switching. Nonetheless, it still shows an obvious reason for the switch.

Despite natural gas, or LNG, being a cleaner fuel, the locomotive industry has yet to develop an engine, or retrofit, that is compliant with the strict Tier 4 requirements that the US has imposed. Therefore, to be truly competitive in the US, a Tier 4 compliant engine or retrofit will need to be developed.

As the current economic situation is showing rather well, prices of commodities are volatile. To ensure a company receives payback on its investment in an engine that runs on LNG, the price differential between natural gas and diesel must be sustained. Additionally, whilst it is noted above that there is still a fairly sizeable gap between oil and gas, even where the ratio stays the same, a low oil price will mean that the fuel savings will be smaller, and therefore a change is less attractive. Companies will always look for methods to cut costs and increase profit, but this will be weighed up with the risk of vast capital expenditure necessary for the change.

The market is yet to develop an LNG only train. Due to the technical restraints of running an LNG-only train, a dual fuel method has been preferred. GE have developed a dual fuel retrofit kit that allows for the engine to powered by up to 80% LNG with the other 20% diesel. EMD have also developed a similar product that is reported to use up to 60% LNG. Both of these have been tested by BNSF, although little is known of the results of those tests.

One of the most important obstacles to overcome is the infrastructure investment needed. In addition to the cost of new locomotive and fuel tenders, refueling facilities will also need to be overhauled. Whilst dual fuel may help the transition, it will also require double the refueling infrastructure which implies greater land requirements and thus potentially higher operating costs.

The market is always on the lookout for ways to save money, and the rail industry is no different. North America provides the best market conditions for a breakthrough with its high levels of long haul freight and relatively low penetration of electric powered traction. However, any switch will be costly, and not without its financial risks. Nonetheless, with GE and EMD actively pursuing the technology, and rail companies like BNSF testing it, there are certainly signs of progress that suggest a switch to LNG is a likely proposition.

Source: MJM Energy