Transitioning from diesel
By Eric Kulisch and Jon Ross
Liquefied natural gas seen as viable propulsion fuel for freight sector.
Transportation industry interest in liquefied natural gas to power cargo vessels, barges, trucks and railroads is growing rapidly in response to the high price of petroleum fuels and new environmental regulations aimed at curbing harmful emissions and greenhouse gases.
Companies in all surface transport sectors are studying and testing whether LNG is a viable option from a safety and operational standpoint, as well as whether it makes economic sense, and some have already committed to the alternative energy source to power a portion of their fleets.
Natural gas produces about 25 percent less greenhouse gas emissions in transport applications than diesel or gasoline fuel. LNG is produced when natural gas is cooled to minus 259 degrees Fahrenheit through a process known as liquefaction.
One of the biggest challenges facing potential users is the scarcity of any fueling infrastructure. Carriers and energy distributors are uncertain about whether to invest yet — users because they feel they can’t commit to the fuel unless they can easily access supply and providers because they don’t want to build liquefaction plants and pumping stations unless they know there is sufficient demand.
Industry, especially in the maritime sector, is also moving cautiously with LNG because there are few government standards and regulations in place yet that ultimately could restrict operating capability.
“Right now we have zero rules that are promulgated for LNG, so we are working closely with the Coast Guard,” Acting Maritime Administrator Paul Jaenichen said Sept. 19 on the sidelines of a maritime conference organized by the Eno Center for Transportation. “It’s an uphill battle and it’s going to be a pretty aggressive year to get all that policy, guidance and training out.”
The presence of abundant, cheap domestic reserves and new processes — namely horizontal drilling and hydraulic fracturing — that make it possible to extract oil and gas trapped within shale rock formations that previously were uneconomical to produce is making it easier for U.S. transportation providers to consider the jump to natural gas. The price of natural gas in Europe, for example, is three-times that in the United States.
U.S. natural gas production is projected to increase 44 percent from 23 trillion cubic feet in 2011 to 33.1 trillion cubic feet in 2014, according to the U.S. Energy Information Administration (EIA).
Trucking. Companies such as UPS, C.R. England, Lowe’s, Dillon Transport, Saddle Creek Transportation and others have begun to accelerate purchases of natural gas tractors for their fleets after experimenting with the technology for several years.
Smaller companies may have more difficulty purchasing LNG tractors without government or shipper subsidies, because the cost is more than $30,000 above the price of a diesel tractor.
Trade-offs for truckers include heavier fuel tanks, shorter ranges and different maintenance schedules versus diesel engines. Some question whether natural gas is efficient as diesel, but comparisons are difficult because maximizing mileage per unit of fuel depends on so many variables.
Fuel is the second-largest expense for trucking companies. The average Class 8, over-the-road tractor uses about 20,000 gallons of fuel per year.
Many carriers believe the cost difference — about $1 to $1.50 per unit between natural gas and diesel, and the fact that the price of natural gas is much more stable — outweighs other considerations. The national retail average price for a diesel gallon equivalent of LNG at the end of October was $2.85. The same amount of CNG (compressed natural gas) costs $2.73, according to Clean Energy Fuels Corp., a publicly traded company founded by Texas oilman T. Boone Pickens and the largest provider of natural gas for vehicles in North America.
At the end of November, the national average diesel fuel price was $3.84 per gallon, which was actually 19 cents lower than a year earlier.
At a $1 spread, a long-haul carrier would save $20,000 per year in fuel costs for each vehicle and at $1.50 the savings would rise to $30,000 annually.
The big breakthrough that could accelerate adoption of natural gas power is the advent of new 12-liter ISX engines from Cummins Westport, a joint venture between Cummins Inc. and Westport Innovations, that perform better in long-haul, heavy-freight trucks. The previous nine-liter engines did not have adequate driving range or horsepower to meet the demanding requirements of most motor carriers, industry officials say. They are better suited for buses, concrete mixers and refuse trucks.
With the new right-size engines, natural gas adoption by motor carriers could grow the way it did in the garbage industry. In 2013, natural gas engines represented 60 percent of new trucks purchased by refuse companies versus 3 percent in 2008 when the nine-liter engines first hit the market, Clean Energy spokesman Patric Rayburn said.
Cummins Westport has seen an increase in orders for natural gas truck engines since the 400-horsepower, 12-liter engines entered full production in August, according to Marketing Director Jeff Campbell, who declined to provide specific volumes.
Clean Energy, which provides price discounts to companies that sign long-term fueling contracts for their fleets, expects to have built between 100 and 120 fueling stations by the end of 2013, he said.
However, only about 20 of those are operational. The other stations are ready to quickly open once there is enough demand to break even, which normally requires an anchor tenant with at least 20 trucks, he said.
Development of fuel stations has been carefully timed with the production start of 12-liter engines, which are expected to drive greater interest in the alternative fuel technology, Rayburn said.
Clean Energy has created LNG freight corridors in Texas — with fuel stations in Dallas, Houston and San Antonio — and the Southwest — with stations in Ontario, Calif., Las Vegas and Phoenix. A new station was recently completed in Salt Lake City and awaits a launch customer.
Further expansion of “America’s Natural Gas Highway” will proceed as demand dictates, Rayburn said.
CNG is ideal for short-distance applications within a metro area in which vehicles return to their terminal every day because refueling with CNG takes longer. When vehicles are rapidly filled with CNG the molecules expand, limiting the volume in the tanks. LNG works better for trucks that operate long distances from their home base and need to quickly refuel to get back on the road without sacrificing capacity. CNG tanks are also heavier than those for LNG.
Three years ago, UPS Freight deployed 48 heavy-duty LNG tractors for its less-than-truckload run between Ontario and Las Vegas.
In April it announced plans to buy 700 natural gas vehicles by the end of 2014 and in October said it would invest about $50 million to build nine more LNG fueling stations for its trucks in addition to four facilities announced in April that are expected to be operational within a year. The Atlanta-based integrated logistics powerhouse says LNG tractors will displace more than 24 million gallons of diesel fuel annually.
The expansion will include on-site fueling stations in Florida, Illinois, Indiana, Mississippi, Ohio, Pennsylvania and Texas. Construction is already underway at previously announced UPS facilities in Knoxville and Nashville, Tenn. The four stations scheduled to open next year will cost more than $18 million.
UPS has contracted with Maryland-based GP Strategies to build the facilities and with various providers, including Pivotal LNG, to supply natural gas to the stations, spokeswoman Susan Rosenberg said.
Pivotal said in April that it will supply an average of 500,000 gallons of LNG fuel per month to the fueling stations, which UPS will own and operate, over the course of its 10-year contract.
LNG is one of many alternative fuels being used or tested by UPS for its diverse fleet of planes and trucks. Its goal is to reach 1 billion miles driven by its alternative fuel and advanced technology fleet by 2017.
UPS also operates about 1,000 compressed natural gas vehicles and will begin a pilot program testing CNG tractors early next year.
The scaling up of UPS’s LNG fleet signals those taking a wait-and-see approach that the giant transportation company has determined the fuel is viable from an operational and economic standpoint.
Company officials say LNG doesn’t compromise the tractor’s capabilities, fuel economy or drivability.
UPS continues to take advantage of state and federal grants promoting emission reduction technologies when possible, Rosenberg said.
In September, Waco, Texas-based Central Freight Lines bought 100 2014 Freightliner CNG tractors equipped with nine-liter engines. The less-than-truckload carrier took advantage of a Texas program that provides a rebate for trading in a diesel truck for a natural gas vehicle.
On Oct. 17, home improvement retailer Lowe’s launched a dedicated fleet of natural gas-powered trucks operating from its regional distribution center in Mount Vernon, Texas. The company said it expects to reduce greenhouse gas emissions by almost 20 percent and cut fuel costs on up to 68 truckloads of product shipped every day to stores in Texas, Louisiana and Oklahoma.
“The transition to a natural-gas-powered fleet was a natural step for Lowe’s because of the economic and environmental benefits of natural gas,” Steve Palmer, vice president of transportation, said in a statement. “Given the amount of natural gas that’s available domestically, broadly utilizing natural gas will give us an opportunity to better control our transportation fuel costs in the coming years. Our goal is to replace all of our diesel-powered dedicated fleets [operated by third-party carriers] with natural gas trucks by the end of 2017.”
The company began using natural gas trucks last year at its distribution center in Kissimmee, Fla., and teamed with longtime trucking provider NFI to launch the natural gas dedicated fleet in Texas. Clean Energy will support the NFI fleet by opening an LNG fuel station in Sulphur Springs, Texas.
Meanwhile, AMP Americas said it has struck a deal with two dairy cooperatives to convert a portion of their diesel fleets to CNG-powered tractors and build seven public fueling stations by early next year servicing routes in Texas.
Initially 40 Class 8 tractors will be converted.
And TruStar Energy in November opened a CNG public fueling station to primarily serve Kalmbach Feeds of Upper Sandusky, Ohio, which plans to switch its entire fleet of distribution trucks to either dedicated CNG or CNG and dual-fuel powered vehicles within five years. The company is investing in a new garage designed to service CNG vehicles.
U.S. Oil has 12 CNG stations under construction around the country. A station slated for Gary, Ind., along Interstate 80/90 will support Roehl Transport and H.M.D. Trucking. Roehl, a truckload carrier, is ranked by Transport Topics as the 68th largest trucking company in the United States.
Walmart, which operates a private fleet of 6,500 tractors, has actively tested LNG and CNG vehicles on a limited scale in over-the-road, local and yard environments in Southern California for several years, Tracy Rosser, senior vice president of transportation in the United States, said Sept. 17 in Washington at the Women in Transportation International annual conference. The retail giant wants to collect more data about the efficacy of powering its vehicles with natural gas and is considering expanding its pilot program to Texas, he said.
Walmart was one of the first companies to receive the new Cummins Westport 12-liter engines and is operating it on CNG in Fontana, Calif.
“We are continuing to evaluate both LNG and CNG for performance and reliability of the equipment, maintenance impacts, fuel economy, access to fuel, overall cost and life-cycle sustainability,” spokesman Christopher Schraeder said.
Clean Energy, based in Newport Beach, Calif., recently partnered with GE Capital to essentially neutralize the cost premium of a natural gas tractor if a carrier leases the vehicle, or takes out a loan, through GE Finance and coordinates a fueling agreement with Clean Energy. The company will help offset monthly payments with lower fuel prices to enable carriers to achieve a one-year payback on the incremental cost of natural gas trucks. The goal is to accelerate fleet conversions to natural gas.
Congress has not moved to consider a federal tax credit for those who purchase natural gas trucks. Making the case is more difficult when the legislative priority is to bring down the deficit, but some states and localities are trying to lessen the transition burden. California, a leader in setting clean air standards, recently reauthorized a $100 million annual alternative/renewable fuels program that is expected to provide at least $22 million per year in grants to fleets purchasing natural gas trucks.
The ports of Los Angeles and Long Beach, along with the South Coast Air Quality Management District, in recent years have helped defray the cost of several hundred new shuttle trucks using state and federal grants. And the San Bernardino area governments collaborated to distribute $18 million in state and federal grants to help Ryder Truck Transport Services purchase and deploy up to 202 heavy-duty trucks and construct two LNG refueling stations, which opened last summer.
Several other states, including Colorado and Oklahoma, have publicly committed to purchase natural gas vehicles for their government fleets and officials have expressed interest in creating incentive programs for vehicle adoption, Todd Campbell, Clean Energy’s vice president of legislative affairs, said.
Clean Energy and the trade association Natural Gas Vehicles America succeeded this year in convincing 10 states to enact legislation to equalize the tax on consumption of LNG for transportation.
LNG was not historically thought of as a transportation fuel and is taxed on a quantity basis, which puts the gas at a disadvantage relative to diesel fuel because it takes 1.7 gallons of LNG to equal one gallon of diesel in terms of energy equivalence, Campbell explained. The natural gas vehicle industry argues that LNG should be taxed at the BTU level. CNG is not a liquid and states developed a formula to tax it at the BTU equivalent of gasoline. The goal is to get LNG taxed at the diesel-gallon equivalent in terms of energy output. Otherwise LNG operators pay 40.8 cents per gallon compared to the current federal diesel tax of 24.4 cents per gallon, which eats into the value proposition of natural gas.
Campbell said industry stakeholders are targeting 20 more states in 2014 where they think similar legislation can pass.
“Once you educate legislators that it’s a domestic fuel, it’s cleaner, that it will lower prices for businesses and create American jobs, they get it,” he said.
Natural gas won a big victory in Florida during 2013 when the legislature passed tax parity and then went a step further and granted a five-year tax holiday on LNG consumption until the new taxing methodology kicks in. The state also enacted legislation to pay 50 percent of the incremental cost difference between a natural gas vehicle and a diesel one as an incentive for businesses to transition to the alternative-fuel trucks.
Legislation has been introduced in Pennsylvania for a $50 million incentive program covering half the incremental cost gap to jump-start adoption of natural gas trucks, which would extend a three-year, $20 million program that expires next year, according to Campbell.
Clean Energy says it doesn’t ask for any subsidies. “We believe that if you give the money to the consumer so you can have products, then you don’t need help to build filling stations,” Campbell said.
The lesson of the ethanol market, he said, is not to build out infrastructure before customer demand materializes.
Rayburn said Clean Energy is working with the Environmental Defense Fund on a “wells-to-wheels” analysis of the natural gas supply chain to identify best practices for minimizing methane release and other environmental improvements.
Maritime Shipping. In late November, Jacksonville, Fla.-based Crowley Maritime said it will order two self-propelled container/roll-on, roll-off ships for the trade between the U.S. mainland and Puerto Rico.
The 26,500-deadweight-ton ships will have a cargo capacity of about 2,400 TEUs, with additional space for nearly 400 vehicles. The main propulsion and auxiliary engines will use LNG as fuel. The ships are being built by VT Halter Marine of Pascagoula, Miss., and are due to be delivered in the second and fourth quarters of 2017.
Crowley did not disclose the cost of the ships, but the Mississippi Press quoted the chief executive of VT Halter as saying the two ships will be built at a cost of $350 million. The two ships will replace six ro/ro towed barges that Crowley currently operates between Jacksonville and San Juan.
Tucker Gilliam, vice president of special projects, said the faster speed of the ships and their greater capacity will allow Crowley to actually increase its capacity on the route. The barges that Crowley currently operates take six days to travel from Jacksonville to Puerto Rico, and the new ships will be able to complete the voyage in two and a half days.
Crowley, whose tugs today burn distillate fuel, said by using LNG it will be able to eliminate sulfur oxides and particulate matter emissions and reduce nitrogen oxides by 92 percent, and reduce greenhouse gas emissions as well.
Gilliam said the closed vehicle decks will be able to carry oversize, ro/ro vehicles such as buses as well as automobiles, and offer a quality of transportation comparable to that offered by operators of pure car truck carriers. Today, Crowley transports cars on the inboard lanes of its triple-deck barges. This offers good protection, but Gilliam said in rough seas, they might be exposed to ocean spray or rain.
The ships were designed by Warstila Ship Design and Crowley subsidiary Jensen Maritime, a Seattle-based naval architecture and marine engineering firm.
Crowley is the latest in a series of U.S. shipping companies building new vessels that can be fueled by LNG. Sea Star, Crowley’s competitor in the Puerto Rico trade, is building two ships that will use LNG, and Sea Star’s sister company, Totem Ocean Trailer Express, is putting new dual-fuel engines in the two Orca-class ro/ro ships that it operates between Tacoma and Anchorage so they can burn LNG.
Matson recently ordered two new ships from Aker Philadelphia shipyard for its Puerto Rico service that will be capable of being fueled with LNG and bunker oil. And the U.S. Maritime Administration has awarded a $900,000 grant to Horizon Lines to assist it in converting one of its ships in service between Los Angeles and Hawaii to run on LNG.
Last summer, NASSCO shipyard in San Diego said it is building four 50,000-deadweight-ton product tankers for American Petroleum Tankers that will be “LNG-conversion-ready.”
Global commodities shipper Cargill said in mid-November it is assessing the potential of powering its deep-sea ships with LNG.
The company said it’s working with the classification society DNV GL, Royal Dutch Shell and international advisory firm Xyntéo to “evaluate possible ways to use LNG for dry bulk and tanker vessels.”
“The increasing range of emissions regulations, plus the potential introduction of new emission control areas, should see LNG-fuelled ships grow in competitiveness — making a transition potentially viable,” the companies said in a press release.
Roger Janson, president of Cargill’s ocean transportation business, said his company “operates over 500 vessels at any given time, and we have a close relationship with vessel owners. Together, we are continuously looking for new ways to improve the efficiency and environmental impact of the fleet, something which is also of growing importance to our customers.
“The use of LNG as a shipping fuel for bulk vessels still poses a number of technical, operational, and commercial challenges that need to be carefully evaluated. But we are confident that LNG will play an important role in the future of shipping, and we are proud to be part of this effort,” he added.
There are currently 38 LNG-fueled ships in operation worldwide, in addition to LNG carriers, according to Cargill. These vessels are primarily found in Scandinavia, and are generally car and passenger ferries used in coastal and short-sea shipping — although other types of vessels, like chemical tankers, have also started using the fuel.
The types of ships under consideration for LNG-fueling by Cargill and its partners are ocean-going dry bulk vessels, which have few opportunities to refuel at sea. The potential use of LNG fuel for tankers will also be explored.
The companies involved are looking at investments that would begin in or around 2016.
United Arab Shipping Co. in August ordered five 18,000-TEU ships — the largest ever ordered — and five of 14,000 TEUs of capacity from Korean shipyard Hyundai Heavy Industries that will also have the option to be fueled by LNG or diesel.
Having diesel capability is considered necessary on long-haul voyages where LNG might run out and because many ports do not have LNG infrastructure yet.
Anil Vitarana, president of United Arab Agencies, the agent for USAC in the United States, said at a conference in late October he hoped more ports will someday offer carriers the ability to fuel their ships with LNG.
He pointed out that fuel is now 60 percent of the cost of operating containerships — LNG offers the potential to be not only less expensive than bunker fuel but also reduce sulfur oxides and other pollutants, and meet clean air standards as more emission control areas (ECA) and strict caps on emissions are rolled out globally.
There is another motivation for UASC — one of the carrier’s owners is Qatar, a large producer of natural gas.
Engine conversion turned out to be more difficult than Sea Star anticipated, President Peter Keller said at the second annual SHIPPING Insight Fleet Optimization Conference in Stamford, Conn., three months ago. Keller said the company originally hoped to modify the existing engines on the ships, but after two years of discussion with the original equipment manufacturer, was unable to obtain a conversion kit.
The work to re-power the Totem Ocean ships will be done at the General Dynamics NASSCO shipyard in San Diego, which will also build two new ships for Sea Star.
Steel for Sea Star’s two new “Marlin class” ships for the mainland-to-Puerto Rico trade will be cut in February and the keel will be put down in July, with the second ship following in December, he said.
Those engines will also be dual-fueled, but Keller is confident they will be able to use LNG from the start. Unlike the Orca-class ships with their four diesel electrics, the Marlin ships will have a single low-speed MAN diesel engine made by Doosan in South Korea that will be dual-fuel capable.
A major motivation for using LNG is the ECAs agreed to by member nations of the International Maritime Organization. The Totem Ocean ships operate 100 percent of the time in the North America ECA and the Sea Star ships spend 30-40 percent of their time within the area today. In January, an ECA around Puerto Rico and the Virgin Islands goes into effect.
Technology and low-sulfur bunker fuel can help carriers comply with ECA regulations, but Keller said “when you go to LNG you are bypassing a lot of the intermediate steps and going straight to the heart of the problem,” adding that burning LNG will virtually eliminate particulate matter and dramatically reduce sulfur oxides, nitrogen oxides and carbon dioxide.
He suggested transatlantic carriers may want to look at LNG, since they may spend 40-50 percent of their total trip time within the North American or European ECAs.
To reduce emissions, companies may also operate ships with low-sulfur bunker fuel. But low-sulfur fuel sells at a premium today and the price is not expected to significantly drop in the near future.
Some cruise lines plan to install scrubbers on their ships to reduce pollution, and Keller said they may be attractive to operators of tramp vessels or ships on long voyages outside of ECAs — for example across the Pacific.
But Totem Ocean and Sea Star felt LNG was their best choice for their ships because they make regular voyages to a small number of ports, do not need to carry large quantities of LNG, and probably will have an easier time developing a supply of fuel.
The LNG on the Sea Star and Totem Ocean ships will be stored above deck in large tanks at the stern of the vessel, behind the house. Keller noted there will be room above the tanks for Sea Star to carry specially built containers for carrying live cattle.
The ships may be fueled by trucks or barges initially, but he expects within two to four years there will be liquefaction facilities adjacent to waterways in both Jacksonville and Tacoma.
Clean Energy announced in late October that it has placed a purchase contract on property in Jacksonville, where it hopes to build a LNG fuel terminal.
Clean Energy said it would be the first LNG facility on the Eastern seaboard to specifically supply LNG for the maritime, heavy-duty trucking and rail industries. The planned facility is to be developed by Eagle LNG Partners, a new consortium of Clean Energy, GE Ventures, GE Energy Financial Services and Ferus Natural Gas Fuels, formed to deliver the cleaner-burning fuel in the United States.
Located on the St. Johns River in Jacksonville, Clean Energy said its facility will have the capability to handle about 300,000 gallons of LNG per day to support anticipated increases in maritime and rail use and bolster supply for trucking fleets operating throughout the U.S. Southeast.
In the meantime, Clean Energy is scheduled in early January to open a fuel station in Jacksonville, which will be able to support marine operations, in addition to truck traffic in Florida.
Rayburn, the Clean Energy spokesman, said the fuel will be trucked in from one of its supply sources in the Southeast.
MarAd also recently funded a $500,000 study about the process of supplying fuel for ships and the landside infrastructure needed to store and distribute LNG. The study is being conducted by Det Norsek Veritas and is expected to be completed in the spring.
The popularity of LNG is growing so fast that a vessel operator will soon announce plans to retrofit its entire fleet with LNG technology even though it recently repowered the vessels with Tier 3 diesel engines because the payback is so great, MarAd’s Jaenichen said.
Companies can recoup their investment in less than eight years, he added.
Jaenichen said finding an anchor customer for an LNG terminal is critical for getting providers to invest in facilities. Toward that end, MarAd is talking with metropolitan planning organizations in port districts to determine which ones are considering converting their public bus, truck and refuse fleets to natural gas to attract providers that could also benefit the maritime industry. In Jacksonville’s case, Sea Star and Crowley are the anchor customers. He said LNG bunkering initially will involve some kind of barge operation until direct fueling at a landside facility can be established.
Interlake Steamship Co., an operator of bulk vessels on the Great Lakes, plans to convert its engines to LNG as the main propulsion fuel for seven of its nine vessels. Shell, which announced plans in April to invest in a liquefaction unit at its manufacturing center in Sarnia, Ontario, will supply LNG fuel to Interlake and throughout the Great Lakes region. Interlake’s commitment provided the critical mass Shell needed to justify a facility.
The ships are expected to be the first LNG-powered ships on the Great Lakes and among the first in the United States. With a goal of converting the first vessel by the spring of 2015, Interlake is already working through engineering and design, seeking regulatory approval and securing financing.
One of the biggest initial challenges was figuring out how to fit the cryogenic tanks on board the vessels, President Mark Barker said in an interview in the fall issue of the American Association of Port Authorities’ Seaports magazine.
“The general expectation is that in the next eight-to-10 years, approximately 30 percent of the global shipping fleet will have some form of LNG, mostly dual fuel,” Zickie Allgrove, director of ports and marine terminals at engineering and construction services firm WorleyParsons, told Seaports. “But if you don’t have the ships, why develop the facilities?”
The World Port Climate Initiative has a working group that is monitoring worldwide trends in LNG use in the maritime industry. At the International Association of Ports and Harbors meeting in Los Angeles in 2013, Tessa Major of the Port of Antwerp said the group is focused on three areas in the short term: developing bunker checklists and accreditation guidelines, reporting on LNG risk perimeters and raising LNG awareness. A key group goal is harmonization between ports, providing standardization that can make LNG adoption easier for vessel owners, according to the AAPA magazine.
The Society for Gas as a Marine Fuel was recently established in Bermuda to encourage the safe and responsible operation of vessels using LNG as fuel and all marine activities relating to the supply of LNG, and to develop best industry practices for using the fuel.
Keller said Totem Ocean has been working with regulators and other companies to make sure there will be bunkering facilities both in Jacksonville and Tacoma, respectively.
Rail. Domestic railroads annually burn through 3.3 billion gallons of diesel and that staggering amount of fuel represents a major cost for the carriers. While the price of diesel is currently declining, the change is small compared to the run up in recent years.
To ease future operating costs, Class I railroads like CSX and BNSF have started exploring LNG technology. Switching to LNG as the primary fuel will require tender cars, new locomotives, retrofit kits for existing equipment, fueling infrastructure, and new safety and maintenance procedures, but the potential long-term savings could justify the large start-up costs.
BNSF reported to investors that it spent $3.35 billion on fuel — at an average cost of $3.16 per gallon — during the first three quarters of 2013. CSX spent $1.25 billion on fuel and Norfolk Southern spent $1.21 billion during the same time period. Union Pacific’s tab ran to $2.63 billion for the first nine months of the year.
In its 2013 energy outlook, EIA found that while pollution reduction may have been a factor in previous natural-gas fueling experiments by railroads, fuel economics are the primary reason railroads are more actively pursuing the technology. Projected out, the cost gap between natural gas and diesel will only grow wider, EIA said. It also pointed out that among all the transportation modes exploring LNG, railroads might have the easiest time making the LNG switch.
“Because railroads already maintain their own on-system refueling infrastructure, they may be less subject to the concern that truckers considering a switch to alternative fuel vehicles might have regarding the risks that natural gas refueling systems they require would not actually be built,” EIA wrote. “The high concentration of ownership in the U.S. railroad industry could also facilitate a rapid switch toward LNG refueling, with the associated transition to new equipment, under the right circumstances because there are only a few owners making the decisions.”
The Van Horne Institute, a transportation policy think tank in Calgary, Alberta, recently published a paper that said railroads face an uphill battle converting to natural gas because of the long life of locomotives, which leads to a very low replacement rate. The authors still expect rail to be an early natural-gas adopter in the region, but said it will take a lengthy period to convert fleets to natural gas.
The Association of American Railroads recently created a technical advisory group — which includes representatives from the Pipeline and Hazardous Materials Safety Administration, the Federal Railroad Administration, Transport Canada, and locomotive manufacturers — to establish design standards for fuel tenders, hoses, piping and other tender-locomotive interfaces, spokeswoman Holly Arthur said. No timelines or goals for the group have been set yet, she added.
Meanwhile, railroads are at various stages of experimentation with LNG.
BNSF announced last spring that it would begin pilot testing GE and Caterpillar manufactured LNG engines in 2014. In November, CSX unveiled that it would also begin a pilot program next year to test GE-manufactured engines, with Chief Operating Officer Oscar Munoz saying the transition from diesel to LNG could be “one of the most significant developments in railroading since the transition from steam to diesel in the 1950s.”
GE Transportation has been testing low-pressure natural gas technology since the spring. It is retrofitting several of its Evolution Series locomotives with natural gas retrofit kits that meet the Environmental Protection Agency’s Tier 3 emissions standards. The locomotives will have dual-fuel capability.
CSX will test the GE NextFuel retrofit kits in the field throughout 2014 after an initial plan is developed with the help of the Federal Railroad Administration, according to a spokesman.
Industry officials say they are focused on the safety implications, equipment availability, fuel supply and operational impacts of using LNG. In some cases, development may await any regulatory guidelines that could impact planning by each railroad.
Future challenges include a dearth of LNG production facilities to supply fuel and an almost non-existent manufacturing base for LNG tender cars, Louis Renjel, vice president of strategic infrastructure at CSX, told reporters in Washington to celebrate the completion of a major intermodal expansion project in September.
“We’re cautiously optimistic, but there’s a lot of pieces that have to come in place,” he said.
The Canadian National Railway has been experimenting with LNG fuel and has retrofitted engines in a couple of its locomotives, which now run on 90-percent LNG between Edmonton and Fort McMurray.
“All I can really say at this time is that Norfolk Southern is not taking steps to convert to LNG fueling right now, but we are keeping abreast of changes and new trends in the industry,” a spokesman said. “We have plenty of options ahead of us, but we have nothing to announce today.”
The Indiana Harbor Belt Railroad recently received a $34.5 million federal Congestion Mitigation and Air Quality grant through a regional Chicago planning organization to convert 31 switcher locomotives to dual CNG-diesel capability and build a CNG fueling station on its property in Hammond, Ind., which will be served by pipeline, Purchasing Manager Michael Nicoletti confirmed. It will contribute another $20.7 million of its own money to the four-year project.
IHBR is the largest switch carrier in the United States with 54 miles of mainline track and 266 miles of additional yard and siding track.
CNG is a good fuel option because IHBR operates within a 50-mile radius of its main facility, where it already has a centralized diesel fuel station, he said.
The first locomotives should be delivered in 2015.
Barge. There is tremendous interest in natural gas within the tow-boat sector to help meet new emissions standards, Jim Kruse, director of the Center for Ports and Waterways at Texas A&M University’s Transportation Institute, said on a conference call hosted by investment bank Stifel Nicolaus.
The infrastructure and technology are not quite ready for commercial use, but tow operators will migrate to natural gas as a fuel in the near future, he predicted.
(Chris Dupin contributed to this report.)