CERAWeek '13: LNG fuels could boost crude-by-rail

By Ben DuBose
Online Editor

HOUSTON -- The development of liquefied natural gas (LNG) fuels could bolster North America's crude-by-rail industry by significantly cutting prices, the CEO of BNSF Railway said late Wednesday.

Speaking at the IHS CERAWeek conference in Houston, BNSF’s Matt Rose said his company is currently testing the use of locomotives running on LNG, which could dramatically lower costs.

Moreover, Rose described himself as “cautiously optimistic” that they could prove viable in the near future.

Rose delivered his comments at a plenary session on the North American energy abundance. While other panelists, including Enbridge CEO Al Monaco, touted the need for pipeline system expansions, Rose countered that rail offers a “reliable, safe and flexible alternative to pipelines”.

One advantage to rail is the extensive network, he noted. For example, most pipeline networks currently lack the ability to transport crude oil to Northeast US refineries.

On the other hand, rail still faces challenges in the form of permitting and Environmental Protection Agency (EPA) regulations, Rose added.

Nonetheless, Rose is quite bullish on the crude-by-rail outlook. In an interview with The Wall Street Journal, he predicted that by the end of 2013, crude shipments on US railroads could reach 700,000 bpd, up 40% from current levels.

In another 18 months, Rose said that figure could rise another 43% to 1 million bpd.

Morgan Stanley recently compared the cost of shipping crude by rail and pipeline from North Dakota to the Gulf Coast, concluding that rail costs -- about $18/bbl -- were higher than pipeline costs of $12/bbl.

But Rose contends that while operational costs are higher, railroads can move more expeditiously than pipelines to establish new shipping options. This is critical for rapidly-growing fields such North Dakota’s Bakken and the Eagle Ford in South Texas.

Additionally, if LNG fuels soon become a reality, the margin gap between rail and pipeline could shrink.

CERAWeek continues through Friday at the Hilton Americas in downtown Houston.

-- Additional reporting by Russell Gold via Dow Jones Newswires

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