BNSF Railway expects to be moving a million barrels of oil a day in the not too distant future, and it would like to move it with natural gas powered locomotives.
The domestic oil and gas drilling boom has made oil more plentiful and gas abundant and cheap. The oil is locked in the mid-Continent, awaiting new pipelines, but it already is moving on trains.
Natural gas is now cheap enough to be considered as a fuel for locomotives and other vehicles.
At the same time, oil shipments by rail have soared, along with the increase in domestic crude production, up about 1 million barrels in the past year.
BNSF CEO Matt Rose said the railroad now ships 525,000 barrels a day and expects that to grow to 700,000 barrels by the end of the year. Shipments could reach 1 million barrels in the next 18 months.
"Over the last several years, we've been working with our two rail engine suppliers, General Electric (GE) and Caterpillar (CAT), and we believe they have some real solutions," said Rose, speaking at the IHS CERAWeek conference in Houston.
Rose said the company plans to pilot a program for an LNG engine and will work with policy makers and regulators to seek approval over the next year. BNSF was once Burlington Northern and is owned by Berkshire Hathaway (BRK-A).
"This would be the largest transformation since from the steam locomotive to the diesel locomotive," he said. If approved, the engines would reduce emissions and provide more competitive rail product versus the highway, he said.
(Read More: Oil Supplies Are Key Topic at Annual CERA Week)
Rose said the first oil shipment by train was by EOG was in late 2009, and since then BNSF has seen a surge in oil shipments. Even with new pipelines coming on line, Rose expects the business to do well, since customers like the flexibility and it will be difficult to put pipelines into densely populated areas like the East Coast.
"Customers like it for flexibility and reliability. We also know we have to do it in a safe manner," he said.
Andrew Lipow of Lipow Oil Associates said about 65 percent of the Bakken oil produced in North Dakota is being shipped by rail currently.
BNSF is also shipping 275 million tons of coal this year, able to power 10 percent of the electricity generated in the U.S.
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