Natural Gas Railways

Brian Hicks

Written By Brian Hicks

Posted March 7, 2013

Berkshire Hathaway (NYSE: BRK.A) is testing out a shift toward natural gas for its railway company.

BNSF Railway Co., one of the largest domestic consumers of diesel, will investigate the options for moving its locomotives onto natural gas instead.

If the experiments, scheduled for later this year, prove worth the effort, then it would not only be a big blow to the dominance of diesel fuel in the rail sector, but also dramatically increase natural gas’ profile as the fuel of choice.

Needless to say, the ongoing glut of natural gas production plays a major role in this shift. Industries from electric utilities to tugboat operators have opted to switch to gas in order to take advantage of this buyer’s market—after all, the current low prices aren’t permanent.

The Wall Street Journal reports:

“This could be a transformational event for our railroad,” BNSF Chief Executive Matt Rose said of the plan, which hasn’t been publicly announced. Shifting to natural gas would “rank right up there” with the industry’s historic transition away from steam engines last century, he said.

Commonly, the rail sector relies heavily on diesel fuel. BNSF remains the second-largest consumer of diesel after the U.S. Navy, as the Wall Street Journal reports. The sheer scale of operations involved means that a systemic shift to a new form of fuel will not be a straightforward move. BNSF requires approval from various federal regulators, and then the company will have to effect changes to fuel depots, tanker cars, and invest in training and hiring.

Retrofitting a diesel locomotive and adding a tanker car would increase the average cost of a locomotive by 50 percent. That’s 50 percent on top of the usual $2 million that locomotives cost. However, the payoff is in the long term, as economies of scale gain precedence over time.

BNSF hopes to have some pilot trains moving by the end of this year, with full-scale retrofitting in operation in 2014.

This would not be the first time BNSF has thought about moving to natural gas; the company did look into it back in the 1980s, but steep prices caused that idea to be shelved. Now, that is no longer an issue; at current prices, the comparison between a gallon of diesel fuel and its equivalent energy amount in natural gas is $3.97 to 48 cents.

Again, that stark disparity does not fully account for all the initial investments BNSF needs to make in order to simply move its whole system onto a natural gas platform, but in the longer term, the profits will mount.

BNSF is hoping to acquire new locomotives manufactured by General Electric Co. (NYSE: GE) and Caterpillar Inc. (NYSE: CAP). Early tests have shown that these can go farther before needing to be refueled, yet they command roughly equivalent towing power.

Even though retrofitting is a costly venture, and making such massive changes to a large railroad operation takes enormous time and coordination, the rail industry may in fact choose this in order to avoid the similarly expensive anti-pollution measures enacted by evolving EPA standards.

From the Wall Street Journal:

“The overriding incentive is the low price of the fuel,” said Raj Sekar, manager of engines and emissions research at Argonne National Laboratory. He said it would likely take at least five years for gas-powered locomotives to be a significance presence on the rails.

Currently, BNSF operates nearly 6,900 locomotives. If BNSF can successfully pull off even a half-way shift toward natural gas, it will undoubtedly be a powerful motivator for the rest of the domestic railroad industry to get thinking seriously about shifting to natural gas.

Meanwhile, if BNSF continues its plans for a shift to natural gas, North Dakota stands to gain a lot. That state is currently caught in the hapless situation of having to flare off excess gas on a daily basis, simply due to overproduction.

If BNSF chooses to draw its natural gas supplies from there, then flaring can be reduced greatly, if not wholly eliminated over time. The Bismarck Tribune reports that ND currently needs to flare almost 30 percent of all the natural gas its oil fields are producing. The existing pipeline infrastructure is simply inadequate to transport all that gas, and the production in that state is almost thrice that of the national average.

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