Berkshire Hathaway Inc.’s locomotive unit, BNSF Railway Co., is launching a pilot project this year to test whether the blue flame of natural gas in liquid form might deliver a cleaner, more economic sound than diesel in its freight trains.

BNSF CEO Matthew Rose told delegates last week at IHS CERAWeek 2013 that the railway is working with General Electric and Caterpillar’s EMD unit to develop the liquefied natural gas (LNG) engine technology that would be used.

Diesel now powers a 6,900-plus fleet of locomotives that traverses a network of 32,500 route miles across 28 states and two Canadian provinces.

“It comes down to the spread relationship between LNG and diesel,” said Rose. “Once you get that in your head you can make that decision pretty quickly.” Using LNG as an alternative to diesel offers a “potential transformational change for our railroad and for our industry.” A shift of this magnitude could be compared with freight trains’ conversion from steam power, he added.

“This is a really big idea but it’s truly laced with all sorts of challenges,” which Rose described as “daunting technical and regulatory challenges still to be faced. This pilot project is an important first step that will allow BNSF to evaluate the technical and economic viability of the use of liquefied natural gas in through-freight service, potentially reducing fuel costs and greenhouse gas emissions, thereby providing environmental and energy security benefits to our nation.”

Last year diesel fuel on average cost $3.97/gallon, according to the Energy Information Administration. On an equivalent basis, natural gas last year cost about 48 cents at industrial prices. The lower costs could be a big deal to BNSF, which is one of the world’s top diesel consumers.

Last year alone BNSF hauled more than 1.7 million carloads of industrial products, including enough crude oil from the Williston Basin of North Dakota and Montana “to fill the tanks of more than 656,000 average-sized vehicles with gasoline every day.” It also hauled 2.2 million coal shipments in 2012, most of them from the Powder River Basin in Wyoming and Montana. In addition, BNSF carried one million-plus carloads of agricultural commodities and an estimated 4.7 million intermodal, or container, shipments.

Using natural gas to fuel locomotives isn’t revolutionary. The former Burlington Northern Railroad system used natural gas locomotives in the 1980s and 1990s. BNSF also tested LNG switch locomotives in Los Angeles until a few years ago when they reached the end of their useful life.

Two years ago a collaboration was launched by Canadian National Railway (CN), the country’s largest railroad, with Westport Innovations and Gaz Metro Transportation Solutions to test replacing diesel with LNG. Last fall CN retrofitted two locomotives to run on a mixture of 90% LNG and 10% diesel; the gas is being supplied by Encana Corp. (see NGI, Feb. 4; Oct. 1, 2012). CN is working with EMD, Westport and Gaz Metro on a longer-term project to explore a state-of-the-art natural gas railway engine and a standardized railway tender.

BNSF was created in 1995 by merging Burlington Northern Inc. and Santa Fe Pacific Corp., the parent of the storied Atchison, Topeka & Santa Fe Railway. Two years ago BNSF became a subsidiary of Warren Buffett’s Berkshire Hathaway, which has investments in a variety of big and small oil and natural gas-related endeavors.

The BNSF pilot project may have the blessing of Buffett, considered one of the richest and most astute investors in the world, but a permanent switch to natural gas by the railway at this point is a long-term bet. In his annual letter to shareholders in February, the Oracle of Omaha explained how low natural gas prices last year pummeled a $2 billion bond investment by Berkshire in power company Energy Future Holdings Corp.

Berkshire invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought in a leveraged private equity buyout on a bet that gas prices would rise and lift wholesale electricity rates. However, gas prices plunged as unconventional gas resources — and drilling — increased.

Ginning up demand for natural gas has become a desperate endeavor by many U.S. operators, with some pushing for LNG export projects, while others hungrily eye supplies that could be used by expanding petrochemical companies or LNG-fueled truck fleets. The BNSF trial would be one more way to reduce gas stores.

It’s early days, said Rose. BNSF has no timetable on how long the pilot might last or where it would be used.

Using natural gas in long-haul services is more operationally feasible today because of “improved economics and technology,” he said. The pilot would be the first — not the last — step to consider how the technology could be used, and even though it appears to offer “enormous potential,” diesel-to-gas conversions would be challenged on the regulatory front.

“The changed market for natural gas in the United States is a critical part of our decision to explore it as a locomotive fuel, and in this pilot we will test natural gas engine technology in railroad service,” Rose said. “We will be working with the equipment manufacturers, the various regulatory agencies and government officials to address the necessary actions to accomplish this.”

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