Both of the major locomotive manufacturers, General Electric and Caterpillar's Electro-Motive Diesel, have developed prototypes that will be tested by Union Pacific, CSX, BNSF and Canadian National railroads beginning this year.
If the projected cost savings are realized, railroads would improve their profits and better compete against trucks, where they already hold the advantage on deliveries longer than 500 miles.
"They can lower their costs further and widen their advantage over trucks," Edward Jones analyst Logan Purk said. But he sounded one note of caution: Natural gas prices have always been volatile, and they could climb if gas exports expand significantly and more industries switch over to natural gas.
Another issue is the design for the fuel tender cars that will haul liquefied natural gas for the locomotives. That's something that will have to be standardized because the major freight railroads regularly pass locomotives back and forth to keep trains moving efficiently.
Once they agree on a design for the tenders, the railroads may have a hard time getting enough of them because tank car manufactures are already struggling to keep up with demand. Customers sometimes wait up to three years for new tankers.
This isn't the first time railroads have flirted with natural gas locomotives. Both Union Pacific and BNSF spent several years working on the concept in the late 1980s and 1990s, so the industry isn't starting from scratch.
Industry officials say the rising natural gas prices that helped scuttle their earlier experimentation with the fuel should not pose a problem this time because significant new sources of natural gas are now available.
Peter Roosen is CEO of VeRail, which is developing natural gas conversion kits for low-horsepower locomotives, such as those used in rail yards.
"I think we're going to have reasonably priced natural gas for decades," Roosen said, "if not for a generation or two."
Follow Josh Funk online at www.twitter.com/funkwrite
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