Canadian National Railway Co. is betting that rail is the next stop for natural gas, the plentiful commodity finding new industrial uses across North America.
On tracks between Edmonton and Fort McMurray, CN is testing two 3,000-horsepower locomotives retrofitted with engines that run on a fuel mix of 90-per-cent liquefied natural gas and 10-per-cent diesel. The route to the oil sands was chosen partly because of the difficult, rolling terrain and the high-tonnage trains locomotives typically pull on that route.
For rail companies such as CN, the benefits of natural gas engines include reduced greenhouse gas emissions and operating efficiency.
According to Energy Conversions Inc., the Tacoma, Wash., company that supplies the inner working of CN's converted engines, the natural gas engines release 30 per cent less carbon dioxide and 70 per cent lower nitrogen oxide compared with conventional diesel-burning locomotives.
The experiment adds rail to a growing list of expanded uses for natural gas, a low-cost resource in increasingly large supply. Many believe new North American natural gas production means prices are likely to stay flat for the foreseeable future. That is spurring more natural gas use in vehicles such as transport trucks and taxis, as well as in power-generation plants.
Still, a full-on conversion to liquefied natural gas (LNG) would be a major undertaking for rail companies.
"We're still in the test phase here," said CN spokesman Mark Hallman. "There are a lot of logistical challenges."
New locomotives would have to be acquired, along with new tender cars carrying the fuel. New fuelling stations would also have to be built.
And as CN notes, new industry standards would have to be adopted since locomotives owned by one railway often travel down tracks owned by a different company. It all adds up to "significant cost implications," as CN put it.
Randy Meyer, an executive with energy transportation company Altex Energy Ltd., told a Calgary oil conference last month that if CN gets the LNG train right, "it will revolutionize the cost of rail, and actually create a significant new market for natural gas.
The natural gas train test, launched in the fall, comes as Western Canadian oil producers are increasingly looking to rail as an alternative means to get crude to the highest-paying North American markets. Mr. Meyer's company focuses on the benefits of rail, such as lower capital investment, access to a wider variety of markets, and less scrutiny than pipelines projects. "We've been sending oil from Western Canada to Quebec for the last year and half. And nobody's been saying anything, but it's been going there."
Andrew Botterill, a senior manager focused on energy at Deloitte in Calgary, said he doesn't foresee significant increases in natural gas prices in the long term, despite a price buildup earlier this year that he believes was weather-related.
"The low prices that we've seen in the last few years is the exact reason why we're seeing these experiments and these types of projects being talked about," Mr. Botterill said of the CN LNG locomotive. "The longer we see soft prices, the more robust the commerciality of those different projects might look in the long term."
CN is also developing two 4,300-horsepower prototype locomotives with Electro-Motive Diesel, a subsidiary of Progress Rail Service, which in turn is owned by Caterpillar Inc. Those prototypes are scheduled to begin testing next year.
Canadian Pacific Railway Ltd. said it is looking into testing liquefied natural-gas-powered locomotives and is considering different suppliers, but the company isn't testing new engines at the moment.
Still, low natural gas prices are helping to give a new impetus across the industry. "The use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry," said BNSF Railway chairman and chief executive officer Matthew Rose.
BNSF, owned by Warren Buffett's Berkshire Hathaway holding company, said in March that it was beginning to test a small number of liquefied-natural-gas-powered engines this year. Union Pacific Corp. and Norfolk Southern are also looking into natural-gas locomotives.
"The changed market for natural gas in the United States is a critical part of our decision to explore it as locomotive fuel," Mr. Rose said.