Next energy revolution will be on roads and railroads: Kemp
LONDON - From modest beginnings in the Barnett shale beneath the city of Fort Worth, unnoticed by most energy analysts, horizontal drilling and hydraulic fracturing spread across North America and transformed all aspects of the energy landscape in under 10 years.
Now the most important question for energy analysts is what technology will revolutionize the system next.
Locomotives powered by liquefied natural gas (LNG) have been tested for BNSF Railway at a private facility as the company takes the next step in a pilot program that could eventually transform the railroad industry and lead to the next phase of the North American energy revolution.
The first phase of testing, involving stationary tests on private property, has been conducted at the Transportation Technology Center in Pueblo, Colorado, using engines converted by Electro-Motive Diesel and General Electric and some LNG tenders inherited from previous trials two decades ago.
But BNSF will test LNG engine-and-tender sets in revenue-earning service on a limited number of tracks by the end of this year, according to the company. These dual-fuel engines are designed to burn diesel mixed with up to 90 percent gas.
People have been forecasting for several years that gas will become the transport fuel of the future; now experiments by BNSF are starting to make it a reality.
The financial incentive to switch is enormous, and the companies involved in testing LNG are among the biggest and most influential in the rail industry, with the engineering expertise and financial resources to make the change happen.
Some commentators have questioned whether natural gas could really replace diesel as the main fuel in use on U.S. and Canadian railroads, despite being much cheaper and cleaner. But skeptics risk missing the next big shift in the energy system.
The commodity cost of natural gas is around one-fifth that of diesel on an energy-equivalent basis, thanks to the shale boom, and the gap shows no sign of closing (http://link.reuters.com/wak62w).
Even after the costs of transportation, liquefaction and dispensing are factored in, LNG is around one-third cheaper than diesel, according to indicative prices provided by Clean Energy, the largest supplier of natural gas for transportation in North America ("Introduction to Clean Energy Fuels" June 2014).
The cost advantage could be greater in future if demand for LNG as a transport fuel expands and the industry is able to achieve bigger economies of scale.
Fuel is the second-largest operating expense for BNSF and accounts for a third of all the railroad's operating costs, so there are strong reasons to investigate any technology that could slash the bill.
Set against this, doubters point to the capital cost of retrofitting locomotives to run on a mix of natural gas and diesel and building new tenders to carry the LNG, which is estimated at $1-2 million per locomotive by industry experts.
Railroads or fuel suppliers would also need to build an expensive network of new liquefaction facilities and fueling terminals to support a fleet of LNG locomotives.
And safety concerns would need to be overcome. Railroads are currently forbidden from transporting LNG under hazardous materials regulations enforced by the Federal Railroad Administration.
BNSF, the most prominent railroad involved in testing LNG trains, is the second-largest in North America by revenue and carload volume.
"We're serious," about the potential for LNG trains, the railroad's executive chairman told reporters at a news conference in North Dakota in May. "We are testing them right now". ("BNSF executive sees big opportunity in switch from diesel to LNG locomotives" May 28)
North of the border, Canadian National, one of the two major railroads in Canada, is conducting its own tests for dual-fuel engines powered by a mix of LNG and diesel.
Natural gas has already made more inroads on the highways. Clean Energy Fuels supplies LNG and compressed natural gas (CNG) to trucking at more than 470 facilities in 43 states across the United States, including 180 public stations along U.S. highway network.
The company says it has more than 800 fleet customers and is fueling over 35,000 vehicles every day, including mass transit, refuse trucks, delivery vehicles and heavy tractor-trailers.
Most major truck manufacturers now offer dual-fuel engines. Dual-fuel engines are also increasingly popular for oil and gas drilling and a number of other energy-intensive industrial operations.
There are likely to be synergies between the provision of LNG to the rail, trucking and industrial sectors. Rail and road users could share some refueling infrastructure, cutting the costs for both systems, especially in the early stages.
Moreover, lessons learned in developing gas-engines for heavy trucks can be applied to locomotive engines, helping the technology develop faster.
Burlington Northern, one of the forerunners of BNSF, experimented with LNG-powered trains back in 1980, at the height of the second oil shock.
The trials were abandoned when oil prices fell, eliminating the financial incentive to switch. But the current gap between gas and oil prices has been open since 2011 and shows no sign of disappearing.
The first standard locomotives operating on a mix of LNG and diesel are unlikely to be available until 2017, according to industry insiders. But by the end of the decade, most new locomotives could be equipped with dual-fuel engines.
Based on the time taken for previous technology transitions in the rail industry, such as the switch from steam to diesel, the switch to a dual-fuel fleet could be largely complete by the end of the 2020s or early 2030s.
The potential for displacing diesel is enormous. U.S. railroads use 3.6 billion gallons of the fuel every year. Even bigger quantities are used in heavy-duty trucking (25 billion gallons) and in maritime transport (6.6 billion gallons), where switching experiments are also well underway.
If LNG suppliers can make major inroads into all these sectors, it would make a small but substantial dent in oil demand.
Current trials for LNG-fueled trains are still in their early stages. No decision has been made whether to go ahead and order locomotives and tenders for regular commercial service, and a decision is unlikely to come before 2016.
But there appear to be no insurmountable engineering obstacles to switching to natural gas in the road, rail and shipping sectors. The only issue is the relative price of gas and oil.
As long as the price differential is expected to remain wide, the shift to gas will continue to accelerate.