EIA: LNG shows potential as a railroad fuel

Continued growth in US natural gas production and substantially lower gas prices compared with crude oil prices lead to strong potential for fueling freight locomotives with LNG, according to the US Energy Information Administration’s Annual Energy Outlook 2014 (AEO2014).

In 2012, the seven major US freight railroads collectively consumed more than 3.6 billion gal of diesel fuel, accounting for 7% of the US total. The fuel cost more than $11 billion for the year, representing 23% of their total operating expenses. Given the expected price difference between LNG and diesel fuel, railroads that switch locomotive fuels could accrue significant fuel cost savings, EIA forecasts.

In the AEO2014 reference case, LNG fuel use increases from just over 1 trillion btu in 2017 to 148 trillion btu in 2040, or 35% of total freight rail energy consumption. Under the reference case, the long-run price difference between locomotive diesel fuel and LNG in rail applications increases from $1.48/gal of diesel equivalent in 2014 to $1.77 in 2040.

“The net present value of future fuel savings across the reference case projection for an LNG locomotive compared to a diesel counterpart is well above the roughly $1 million higher cost of the LNG locomotive and tender,” EIA said.

EIA’s AEO2014 includes two alternative cases (the “high” and “low” rail LNG cases) that examine the potential effect of LNG in freight rail. In the high rail LNG case, LNG fuel consumption increases to 392 trillion btu in 2040 and in the low rail LNG case, to just 64 trillion btu, representing 95% and 16%, respectively, of total freight rail energy consumption. Even under the high rail LNG case, overall demand for gas as a result of a switch to LNG would increase overall demand for gas by less than 1%, resulting in a minimal effect on gas prices.

EIA noted in the outlook, however that in addition to the risk surrounding future fuel prices, other factors including operational, financial, regulatory, and mechanical challenges also affect fuel choices by railroads.

“Some major railroad operators view the potential of LNG-fueled trains as similar to the switch from steam propulsion to diesel in the 1940s and 1950s, a revolution in freight rail known as dieselization. Others have responded with more caution, likening the potential switch to the more evolutionary advance from using direct current (DC) motors to alternating current (AC) motors, which allows fewer locomotives to pull the same load. The change towards AC motors has been ongoing since the early 1990s,” EIA said.

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