Florida railway first in US to embrace LNG

The Florida East Coast Railway (FEC) this year became the first US rail system to run primarily on LNG instead of diesel, company executives said.

"We just completed implementing the largest rail LNG project in North America," FEC chief executive James Hertwig said this week at the Natural Gas for High Horsepower Summit in Jacksonville, Florida.

Lower oil prices since mid-2014 have slowed momentum to convert high-horsepower engines to use LNG instead of diesel, although the North American marine sector has progressed in using LNG bunker fuel to comply with stricter emissions regulations. The economics of converting to LNG are based on domestic gas prices being significantly lower than global oil prices, in terms of energy equivalent units.

FEC has unique partnerships and operating conditions that allowed it to convert to LNG, Hertwig said. FEC consumes about 20,000 USG/d of LNG, equivalent to about 1.7mn cf/d (47,000m³/d) of gas.

The 351-mile FEC system, which extends from Miami to Jacksonville, in 2014 ordered 24 new dual-fuel locomotives with the intent to operate them primarily with LNG.

FEC first used LNG in March to power one of the new locomotives, after getting approval from the Federal Railroad Administration, Hertwig said. The number of new locomotives using LNG grew until recently reaching 24. The locomotives, which were built by GE Transportation and have 4,400-horsepower engines, each cost about $2.5mn.

The company has 75 locomotives and uses some diesel, but the 24 new locomotives account for all long-haul transits, FEC chief operating officer Francis Chinnici told Argus on the sidelines of the conference. FEC is paying about 25pc less for LNG than it would for diesel because diesel is relatively expensive in Florida, he said, declining to elaborate.

A major reason FEC was able to convert to LNG is that it combined its operations with a fledgling LNG export business. When FEC decided to buy the new locomotives, it was owned by funds managed by New York-based Fortress Equity Partners.

At the time Fortress was developing plans to export small volumes of LNG to the nearby Caribbean in ISO containers, through its subsidiary American LNG Marketing. Fortress built a small liquefaction plant at the Hialeah rail yard northwest of Miami to produce LNG for FEC and exports.

The unit has liquefaction capacity of 100,000 USG/d, with FEC buying 20pc of the output, Hertwig said.

American LNG Marketing exported its first LNG from Hialeah in February 2016, and through August this year it has exported 66 ISO containers of LNG with a combined volume equivalent to about 229mn cf of gas, according to the latest US Department of Energy (DOE) data. All the exports have gone to Barbados from the ports of Miami or Ft. Lauderdale, at free-on-board prices of $10/mmBtu.

Since March the new locomotives have made 24,000 trips using LNG with a combined volume of 2.7mn USG, equivalent to about 225mn cf of gas, Hertwig said.

In July Fortress sold FEC to Grupo Mexico Transportes, the leading rail freight transportation company in Mexico.

American LNG Marketing initially trucked all the ISO containers from Hialeah to nearby ports, but FEC in recent months has been delivering on its trains about four or five ISO containers a week filled with LNG from Hialeah to nearby ports, Chinnici said. It is not clear where all the supplies are going, as American LNG Marketing is exporting about four or five cargoes a month to Barbados. The DOE does not require the public disclosure of transactions to the US commonwealth of Puerto Rico, which also uses small volumes of US LNG.

FEC has been permitted to carry up to 10 ISO containers filled with LNG per train, and hopes to increase that limit over time, Hertwig added.

American LNG Marketing is building another small liquefaction facility in Titusville, east-central Florida, also along the FEC system. The Hialeah and Titusville facilities both tie into the nearby Florida Gas Transmission system. Fortress plans to soon start exporting US LNG to Jamaica.

FEC also was able to convert to LNG because it is a relatively small system with short routes, Hertwig said. Larger systems have excess locomotives and likely will not attempt to convert until they need to replace those engines, he said.