Railways Testing LNG Locomotives

2048px-Hindenburgdamm_mit_dem_Sylt_ShuttleMichael Gäbler [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

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).

New Emission Rules Driving Technological Change in the Maritime Industry

Ship
By Bo Randstedt (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

In August of 2012 new, lower emission standards for ships plying the waters off the coast of North America came into effect.  The North American Emission Control Area (ECA) extends 200 miles from the cost and is defined by a 2010 amendment to the International Convention for the Prevention of Pollution from Ships (MARPOL).  Ships within the North American ECA must use fuel with no more than 10,000 parts per million (ppm) of sulfur; outside the ECA marine fuel can have up to 35,000 ppm of sulfur.  In 2015 the fuel standard drops to just 1,000 ppm of sulfur.  These are significant decreases in marine fuel sulfur content.  As a point of comparison the on-road diesel fuel standard has been 500 ppm of sulfur since 1994, and just 15 ppm since 2006.

NA ECA

According to the U.S. Environmental Protection Agency (EPA) significant health benefits will accrue from the more stringent marine fuel emission standards.  The new standards will not only help reduce sulfur oxide (SOX) emissions, but nitrous oxide (NOX) and particulate matter (PM) as well.  SOX and NOX react in the atmosphere to create ground level ozone, acid rain and particulate matter which can lead to respiratory and pulmonary impacts, with the young and elderly most severely impacted.  The EPA estimates that the monetized benefits of the standards in 2020 will range from $47 – $110 billion; including 5,500 – 14,00 fewer premature deaths, 3,800  fewer emergency room visits, and 4.9 million fewer cases of acute respiratory problems (EPA Fact Sheet on Emission Control Areas).  These benefits won’t just accrue to coastal communities with major ports.  The chart below shows the 2020 reduction in ozone levels reaching far into the U.S.

2020 Ozone Reductions

The pursuit of low-cost compliance strategies is driving technological change in the shipping industry.  According to the EPA, at the end of 2012 low sulfur marine fuel required for compliance with the ECA emission standards was commanding anywhere from a $100 – $250 per ton premium.  Inexpensive natural gas brought on by the boom in U.S. production is driving many ship owners to consider Liquefied Natural Gas (LNG) technology as a means for complying with the tighter emission standards.  A recent Wall Street Journal article found that LNG at $1.70 per gallon was half the price of marine diesel.  For ships that operate exclusively in the North American ECA, such as tugs, ferries, and some cargo and cruise ships LNG is a particularly attractive alternative.  Harvey Gulf International Marine LLC has six new LNG/diesel duel fuel boats in their fleet.  Harvey Gulf expects to save 50% on fuel costs, making them more competitive.

Carnival Cruise lines is pursuing an end-of-pipe emissions control strategy instead of fuel switching.  The cruise line recently announced plans to install exhaust gas scrubbers on 32 ships at a cost of $180 million (Carnival to Install Scrubber Technology on 32 Cruise Ships).  The scrubber technology lets Carnival meet the more stringent sulfur emission standards in the ECA while still being able to choose a fuel that makes the most economic sense.  LNG is a more difficult technology to make work on cruise ships as they don’t have the space needed to store the required fuel.  Overall, EPA estimates total compliance costs in 2020 will be $3.2 billion, which will continue to drive the maritime industry to seek new fuels and technologies to reduce compliance costs while creating competitive advantage.

More information on the emissions standards in the North American ECA can be found on EPA’s website here.