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UP is next to test gas locomotives

Posted by Fred Frailey
on Friday, April 19, 2013

Edited April 23, 2013

By early next year or even sooner, Union Pacific will begin experimenting with locomotives fueled by natural gas. This follows tests that began last year on Canadian National and BNSF Railway’s announcement that it may decide by 2014 whether to substantially convert its 6,400 locomotives to natural gas.

Robert Turner, UP’s senior vice president for corporate relations, confirms rumors that his railroad is taking a serious look at the alternative fuel. As with the other two railroads, Union Pacific’s tests will involve liquified natural gas (LNG). Turner would not reveal whether UP has a timetable for deciding whether to begin converting parts of its locomotive fleet from diesel to natural gas fuel. As he puts it, “Think: Walk before you run.”

Turner says UP will retrofit “a couple” of high-horsepower locomotives in cooperation with either General Electric or Electro-Motive Diesel (he wouldn’t say which because the deal isn’t finalized). The test will employ one of the two cryogenic tenders UP has leased to CN (and yes, it will be repainted in UP’s distinctive Armour Yellow).

During the tests, explains Turner, various mixtures of gas and diesel fuel will be tried. Because natural gas does not explode when mixed with hot, compressed air, a small amount of diesel fuel is necessary to ignite the gas. On the locomotives CN is testing, the lower throttle notches employ diesel fuel exclusively; only when the locomotives begin to work hard does gas replace most of the diesel fuel.

“It’s an interesting opportunity,” says Turner. “If you can convince yourself there will be a reasonable price differential between gas and diesel fuel, then you have more confidence in moving ahead. Given the volatility of gas prices, it will be a big issue. Then you have issues about infrastructure to fuel the locomotives. Interoperability is a concern, so this may need to involve the whole industry. And the probability is that we would start on certain corridors rather than willy-nilly.”

In case you wonder why all this is happening, consider the economics. In the first quarter of 2013, Union Pacific paid $3.23 per gallon of diesel fuel. At today's wellhead price for natural gas, UP could buy the equivalent amount of energy for 60 cents. Now that three of the seven Class I railroads have publicly committed to testing natural gas (and the Association of American Railroads has set up a technical advisory group on natural gas that all seven roads joined), the important thing to watch is not the technical success of the tests. The tests should go fine, because the technology for using gas in locomotives is largely established.

The real unknown is the future price of natural gas. Before 2000, the wellhead price of gas seldom exceeded $2.50 per million British thermal units. Then prices became quite volatile, edging upward and peaking at progressively higher prices, ultimately more than $13 in 2005 and almost $11 in July 2008. Then faster than prices had gone up, they began tumbling down.

It’s no coincidence that 2008 was when hydraulic fracturing of rock formations and directional drilling began to unloosen oceans of previously inaccessible natural gas. Prices bottomed in April 2012 at less than $1.90 but have since more than doubled, to $4.41 today. But this may be in part because of the extended winter weather and also because drillers were discouraged at prices of less than $3.

Now that winter is finally letting go, the supply of gas in storage is moving up again, which should put pressure on prices. Plus, higher prices for gas should set off even more drilling and greater supplies, driving prices below $3.50 or even $3, in a sort of virtuous circle. Should  the price return to anything below $4 and stay there for a while, it’s going to be hard for the BNSFs and Union Pacifics of this world to say no to natural gas. — Fred W. Frailey

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