After oil, natural gas may be next on North American rails

NEW YORK Mon Jun 16, 2014 1:12am EDT

1 of 2. Irving Oil workers inspect rail cars carrying crude oil at the Irving Oil rail yard terminal in Saint John, New Brunswick in this March 9, 2014 file photo.

Credit: Reuters/Devaan Ingraham/Files

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NEW YORK (Reuters) - As politicians debate the dangers of a massive increase in oil carried by rail in North America, railroads and energy producers are considering the same for natural gas.

Buoyed by the unexpected success of crude by rail, companies are beginning to consider transporting natural gas as remote drilling frontiers emerge beyond the reach of pipelines, executives said.

Natural gas by rail is years away and likely to face strong public resistance after a series of explosive crude-by-rail accidents. But the potentially multibillion-dollar development could connect gas-rich regions like North Dakota with urban centers, presenting an opportunity for railroads, drillers and tank car makers already cashing in from hauling oil on trains.

It could also be a cure for environmentally unfriendly flaring, a growing problem in far-flung areas where more than $1 billion of natural gas produced alongside oil is burned off each year for lack of processing plants or pipelines that can take years to build.

"Everyone is talking about moving gas by rail," said David Demers, chief executive officer of Westport Innovations, which is developing technology for natural gas-powered locomotives. "They see this as a large opportunity and have their pencils out to see how it could work."

Demers said Berkshire Hathaway's BNSF was one railroad considering the move.

BNSF declined to comment on its plans, but a spokeswoman said it would take time for any development of gas by rail.

Transporting gas by rail, most likely as cryogenic liquefied natural gas (LNG), faces obstacles. The technology is in its infancy, and so far no tank car is permitted to carry the fuel on U.S. rails. Nor are there enough plants that convert natural gas to LNG to support a robust gas-by-rail market, experts said.

More-volatile liquids like ethylene and propane already travel on the rails in growing volumes. But as concerns about the safety of crude by rail intensify, regulators are exercising extreme caution with uncertified fuels like LNG, said executives involved in developing the technology.

Stressing that it is too early to say, many of the major Class 1 railroads that have embraced crude by rail declined to speak about specific plans for gas by rail. Calgary-based Canadian Pacific Railway Ltd, for example, was just "monitoring any discussions in this area," a spokesman said.

Breitling Energy Corp CEO Chris Faulkner said he and other gas producers were discussing the idea, but his company was not considering it.

"I can only imagine the amount of pushback we're going to have on transporting gas by rail," Faulkner said. "The discussion isn't about safety and fact, it's about fear."

But as railroads team up with companies like General Electric Co and Caterpillar Inc to develop technology to run locomotives on LNG, many say that hauling the fuel as cargo is the next step as a drilling revolution transforms North American energy markets.

"A LOT OF MONEY"

LNG, natural gas cooled and shrunk to a liquid for shipping, already powers heavy-duty trucks and boats in the United States and Canada. A network of fueling stations is cropping up with backing from the likes of Royal Dutch Shell Plc and Clean Energy Fuels Corp.

Small-scale refrigeration plants that can turn gas to LNG are being built in drilling regions to reduce gas flaring. In remote North Dakota, one-third of the gas produced is flared.

Now, gas by rail is emerging as a possibility. Energy producers have approached Jacksonville, Florida-based CSX Corp about moving LNG by rail, said Louis Renjel, vice president of strategic infrastructure initiatives, but the company has no plans to do so.

Westport Innovations has been approached about developing fuel systems for tank cars that would haul LNG as cargo, according to Paul Blomerus, director of the company's high horsepower sector.

"They make a lot of money transporting oil, so it would make sense" to do the same with gas, Blomerus said.

BNSF is testing LNG-powered locomotives and million-dollar tank cars that would hold the fuel, the first step in a plan announced last year to wean trains off costly diesel.

Regulators and railroads last year established a task force to establish standards for LNG rail cars. A spokesman for the U.S. Federal Railroad Administration said there was no specified deadline for drafting actual rules.

Building these tank cars would be "a natural progression into hauling LNG, similar to what we do with crude oil," said Ken Webster, chief accounting officer at Chart Industries Inc.

Outside North America, steps have already been taken. Chart is developing an LNG tank car in Germany in a joint venture with Hamburg-based manufacturer VTG Aktiengesellschaft.

Japan Petroleum Exploration Co began transporting LNG by train in 2000 by loading specially designed tanks onto railcars, supplying local distributors in regions beyond the reach of gas pipelines. The company says the trains have proven cheaper than trucks in supplying LNG.

EXTRA PRESSURE

Crude by rail has been a lesson not just in how quickly a new transport can emerge but also in the dangers.

An unmanned train carrying crude oil from North Dakota's Bakken region exploded and killed 47 people in the center of the Canadian town of Lac Megantic in July.

Among a string of other accidents, 21 oil tank cars on a BNSF train caught fire after a crash in Casselton, North Dakota, in December.

As concerns grow, a movement against new crude train infrastructure has emerged.

This has "paced" if not slowed progress in rail transport of fuels, said Tina Donikowski, who heads a team developing gas-powered locomotives at General Electric.

"The Federal Railroad Administration is being very cautious," Donikowski said. "They most definitely feel the extra pressure with the problems of crude by rail."

(Reporting by Edward McAllister; Editing by Jessica Resnick-Ault and Lisa Von Ahn)

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Comments (2)
morbas wrote:
Just look at that yard of RR cars. Every one is top heavy and extending not just over the rails, also the carrage trucks…
Rail infrastructure redesign to wider gauge is needed. The present gauge is ad-hock, accommodating two abreast horses. This a standard defined by a Roman Empire 2,000 years-ago. The gauge was adopted only to accommodate existing carriage tooling. With heavier freight, and the demand for longer tank cars, unbalanced top heavy cars present derailment catastrophe in the waiting.

Jun 16, 2014 2:53pm EDT  --  Report as abuse
alowl wrote:
Numbers I see are more like $400 million/mo @ current low prices, just in ND.

Jun 16, 2014 3:04pm EDT  --  Report as abuse
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