The lure of low cost natural gas is driving railroads to consider the switch from diesel to liquefied natural gas (LNG) technology. Just last week GE and freight rail operator CSX announced an agreement to pilot LNG-based locomotive technology in 2014. In addition to the fuel cost advantage, the switch to LNG also reduces emissions and extends the range of locomotives, so less frequent refueling is required. GE has been testing natural gas locomotive engines during 2013, and offers the NextFuel natural gas retrofit kit for diesel locomotive engines. (Having a Gas: Freight Mover CSX Explores LNG tech for Locos).
CSX is not the only railway considering LNG, earlier this year BNSF announced that they would be testing LNG powered locomotives as well. BNSF is looking at LNG locomotives developed by GE and Caterpillar; and is also interested in working with manufacturers to develop dual-fuel engines that can run on both diesel and natural gas. Chief Executive Matt Rose states that BNSF would move quickly to retrofit locomotives if pilot locomotives are reliable. (Berkshire’s BNSF Railway to Test Switch to Natural Gas).
As with the shipping industry, pending environmental regulations are another factor driving rail companies to consider alternative technologies (see related: New Emissions Rules Driving Technological Change in the Maritime Industry). In 2015 new, more stringent, Tier 4 emission standards come into effect for locomotives. The Tier 4 standards ratchet down emission levels for hydrocarbons (HC), nitrogen oxides (NOX), carbon monoxide (CO), and particulate matter (PM). The Environmental Protection Agency (EPA) program assumes that emissions standards will be met through catalytic treatment of diesel locomotive exhaust. This typically requires urea be injected into the exhaust stream to meet emission requirements. (More information on the locomotive emission requirements can be found on the EPA website here).
Though there are environmental benefits to switching economics are the primary driver. The price of diesel is ranging between $3.50 and $4 per gallon and the equivalent price of natural gas is around $.50; even when you add in the cost for cooling and liquefying natural gas a significant price spread remains. The U.S. Energy Information Administration (EIA) estimates that 24,000 locomotives in the U.S. use over 3 billion gallons of diesel per year, a sizable cost saving opportunity for railroads and a market opportunity for engine makers. A recent GE whitepaper estimates the payback on an engine and fuel system investments to occur in 4-9 years for a locomotive.
The potential for LNG powered trains to remake the rail industry is not hypothetical. Since September of 2012 the Canadian National Railway (CN) has been running an LNG train on a 300 mile route between Edmonton and Fort McMurray in Alberta. CN has ordered four more LNG tenders (fuel cars) and plans to expand their testing program in Q4 2013. (Natural gas takes on another bastion of diesel).