Continued growth in domestic natural gas production and substantially lower natural gas prices compared to crude oil prices could result in significant cost savings for locomotives that use LNG as a fuel source, said EIA’s Annual Energy Outlook 2014 (AEO2014). Taken together, the seven major U.S. freight railroads consumed more than 3.6 billion gallons of diesel fuel in 2012, or 7% of all diesel fuel consumed in the United States. The fuel cost more than $11 billion in 2012 and accounted for 23% of total operating expenses.
According to the U.S. Energy Information Administration, these railroads are considering the use of LNG in locomotives because of the potential for significant fuel cost savings and the resulting reductions in fuel operating costs. Given the expected price difference between LNG and diesel, future fuel savings are expected to more than offset the approximately $1 million incremental cost associated with an LNG locomotive and its tender.
EIA’s AEO2014 includes two alternative cases (the High and Low Rail LNG cases) that examine the potential effect of LNG in freight rail. In the Reference case, LNG fuel use increases from just over 1 trillion Btu in 2017 to 148 trillion Btu in 2040, or 35% of total freight rail energy consumption.
In the High Rail LNG case, LNG fuel consumption increases to 392 trillion Btu in 2040, or 95% of freight rail energy consumption. LNG consumption in the Low Rail LNG case increases to just 64 trillion Btu, or 16% of total freight energy consumption. Even under the High Rail LNG case, overall demand for natural gas as a result of a switch to LNG would increase overall demand for natural gas by less than 1%, resulting in a minimal effect on natural gas prices.