(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, April 15 Electro-Motive Diesel, the
world's largest diesel locomotive manufacturer, has taken
delivery of the first of four specially designed liquefied
natural gas (LNG) tenders ultimately destined for use on the
Canadian National railroad.
The remaining tenders, each equipped with a fuel tank
capable of carrying 45,500 litres of LNG, are due to be
delivered before the end of June, according to specialist
industry publication "Railway Age".
The specially adapted engines and tenders will be put
through stationary tests before being handed over to Canadian
National for a pilot programme on the tracks starting in the
summer ("Westport delivers first LNG tender to EMD", April 11).
It is the first small step in what could be a revolution.
Just as diesel locomotives ousted steam trains in the middle of
the 20th century, LNG could replace diesel in the 21st.
But despite the apparent cost savings from switching to gas
from diesel, there are also "key uncertainties as to whether,
and to what extent, the railroads can take advantage of this
relatively cheap and abundant fuel", according to the U.S.
Energy Information Administration (EIA).
BIG FUEL SAVINGS
The seven major Class 1 railroads in North America spent a
combined $11 billion on diesel in 2012, which was about 23
percent of their total operating expenses, according to a
fascinating research note published on Monday by Nicholas Chase
at the EIA ("Potential for liquefied natural gas use as a
railroad fuel", April 14).
The Class 1s accounted for 7 percent of all diesel consumed
in the United States. Burlington Northern Santa Fe (BNSF) and
Union Pacific, the largest railroads, each consumed more than a
billion gallons. The others brought the total up to 3.6 billion.
With diesel expected to cost more than three times as much
as natural gas on an energy-equivalent basis until at least
2040, according to the EIA, there is a strong financial
incentive to switch.
The discounted value of fuel savings could be more than $1.5
million per engine, versus the more than $1 million incremental
cost of an LNG-driven locomotive and its accompanying tender
compared with a conventional diesel locomotive.
LNG's cost advantage is sustained over a wide range of
discount rates, pay-back periods and future oil prices. Crude
prices would have to slump for diesel to become cheaper, which
no one is predicting.
Set against the fuel savings, however, is the fact switching
from diesel to natural gas would create significant operational
challenges and costs for the railroads during the transition.
New fuelling stations and delivery systems would need to be
built. For an extended period they would have to run alongside
the existing delivery infrastructure for diesel, which would add
considerably to costs, with duplication and extra maintenance.
Most of the new engines being piloted by Canadian National
and the other railroads are designed to run on a mix of LNG and
diesel, and would be able to run on diesel exclusively if
necessary because LNG was unavailable in some areas.
The low-pressure LNG engines that Canadian National will
start testing this summer are designed to run on a 60:40 or
80:20 mix of LNG and diesel, though they can switch to 100
percent diesel if needed.
Other high-pressure direct injection (HPDI) engines, some of
which will also be tested by Canadian National, would run on up
to 95 percent diesel.
But there are still concerns that running a mix of dual-fuel
and diesel-only engines across the network could reduce
interoperability, which is a major financial consideration for
There are more than 25,000 locomotives in service with the
Class 1 railroads. The capital cost of replacing all or a large
part of them, equipping them with specially designed LNG
tenders, and providing the associated fuelling infrastructure,
would run into tens of billions of dollars, the EIA says.
"The financing requirement of large capital expenditures
complicates the rather straightforward calculation of locomotive
fuel economics," the agency explains.
"The amount of capital available to Class 1 railroads,
either on hand or raised in capital markets, is an important
factor in determining whether, or to what extent, railroads can
take advantage of fuel savings over time."
Railroads have already made two major changes in engine
technology. Between the 1920s and the start of the 1960s, steam
was replaced by diesel as an engine fuel. Since the 1990s, parts
of the fleet have switched from direct current (DC) to
alternating current (AC) traction motors.
But while the switch from steam to diesel was rapid (under
30 years) and complete (the last steam engine retired from the
fleet in 1961), the shift from DC to AC motors has been lengthy
(20 years plus so far) and partial (only 17 percent of
locomotives use AC motors).
"The advantages of using diesel locomotives over steam were
numerous," says the EIA, which helped overcome the railroads'
initial hesitation about switching given the vast amount of
capital that was already invested in steam engines and their
associated fuelling and watering infrastructure.
Diesel locomotives cost twice as much as steam ones, on a
horsepower basis, but they could travel further, did not need
constant refuelling and rewatering, and avoided a lot of costly
maintenance. As a result, diesel locomotives could achieve twice
the annual mileage of their steam counterparts.
Diesel engines were lighter and caused less wear on the
track, reducing maintenance costs, and they could be switched on
and off more easily (which is why they were first used in
switchyards in the 1920s).
AC traction motors also have considerable advantages over
their DC counterparts. They offer better adhesion to the track,
so fewer locomotives can pull more railcars, with big savings on
But the shift to AC has been far less complete than
dieselisation as railroads decided that other operating issues
outweighed the savings from using fewer locomotives and cutting
The EIA explains: "In recent years, Union Pacific, Canadian
Pacific and CSX have chosen AC traction locomotives because of
locomotive unit reductions, reliability, interoperability and
lifecycle costs. Canadian National and Norfolk Southern have
stayed with DC traction because of the incremental cost and the
inability to apply train unit reductions."
"BNSF has chosen AC locomotives for coal runs, where they
can take advantage of unit locomotive reductions, and DC
locomotives for intermodal runs, where they cannot."
The contrasting paths from steam to diesel and DC to AC
demonstrate that fuel costs alone are not the only consideration
for railroads considering whether to shift from diesel to LNG.
Fuel savings will be weighed against other operational
The EIA has therefore produced a range of scenarios for the
future uptake of LNG by North America's rail industry.
In the agency's High Rail LNG case, which corresponds to
dieselisation in the 1940s and 1950s, all freight locomotives
switch to LNG between 2020 and 2040. But in the Low Rail LNG
case, which corresponds to AC motors, dual-fuel engines would be
introduced into the fleet at a rate of just 1 percent per year
The rail sector's fuel mix could change dramatically -
depending on whether the uptake of LNG locomotives follows the
high scenario, the low one, or somewhere in between.
Diesel consumption is set to fall in all scenarios from its
current level of around 444 trillion British thermal units
(BTUs) to anywhere between 348 trillion and just 20 trillion
Gas use could rise from zero to anywhere between 64 trillion
BTUs and as much as 392 trillion BTUs by 2040.
Under all scenarios, the impact on the gas market would
remain small. Railroads would account for only a tiny share of
gas use, even under the high-penetration dieselisation-type
The impact on the diesel market, where railroads account for
7 percent of total consumption, could be far higher, but only if
a substantial proportion of locomotives switch to the new fuel.
Full EIA report can be downloaded from the agency's website:
(Editing by Dale Hudson)