Warren Buffett, investor extraordinaire, and his rail carrier rivals are embarking on a new journey to shift trains from diesel to natural gas as the transportation sector seeks to take advantage of the country’s gas glut.
Both manufacturers of trains (General Electric Co., GE and Caterpillar Inc., CAT) and the largest rail carriers in the US (Northern Santa Fe LLC, Union Pacific Corp. UNP, and Norfolk Southern Corp. NSC) are teaming up to make natural gas the new fuel that powers locomotives. Northern Santa Fe LLC is owned by Buffet’s Berkshire Hathaway Inc. (BRK/A). Union Pacific is the largest railroad by revenues.
The logic is that though diesel has been the mainstay for trains for 60 years, liquefied natural gas could cut operating costs and also curb greenhouse gas emissions.
Will it be a revolution? Well, that depends on whether natural gas prices remain low, but locomotive manufacturers and rail carriers believe the revolution is indeed here and that for trains, natural gas is to diesel what diesel once was to steam.
Right now we’re only in the development phase, though. But the bottom line is that right now trains are spending a lot more on diesel than they would on natural gas. All they need is the technology to get the natural gas train engine right.
Before the end of this year, Caterpillar should unveil a pilot program for a locomotive engine that uses a mix of diesel and natural gas as a first step. Buffett’s group will also begin testing on a natural gas train this year. Sometime in 2014, we can expect a decision on whether his carrier’s entire fleet will be converted to natural gas.
Even so, a mass-scale conversion would take at least a decade—so it’s a big gamble on the future of natural gas prices.
By. Charles Kennedy of Oilprice.com