US Says “All Aboard” To LNG By Rail

    (Image Courtesy Of Norfolk Southern)

    Liquefied natural gas (LNG) has long been associated as a large-scale, capital-intensive, yet effective, way to transport natural gas long distances to energy buyers. Many LNG tankers have a carrying capacity of around 40 million gallons (151,416 m3), but newer vessels are being designed to hold 45 million gallons (170,344 m3) or even upwards of 50 million gallons (189,271 m3). Vessels continue to get bigger and safer to maximize the effectiveness of transporting LNG halfway around the world.

    What Happened

    The LNG business in the United States was more or less confined to these large-scale, long-term LNG supply agreements. That changed on June 19 when US officials, specifically the US Department of Transportation (USDOT) and the Pipeline and Hazardous Materials Safety Administration (PHMSA), approved the use of cryogenic railcars to ship LNG from production plants to users across North America.

    The authorization is a follow up to Executive Order 13868 (EO 13868), titled “Promoting Energy Infrastructure and Economic Growth,” that was issued in April of last year.

    In general, the ruling puts LNG in the same category as crude oil, gasoline, diesel, and propane in that it can be shipped by rail. One of the main stipulations comes into play when there are continuous railcars loaded with LNG.

    As noted on page 103 of the ruling, “PHMSA acknowledges the concerns about relying on a widely adopted, voluntary industry standard, rather than imposing regulatory requirements. After internal review and in consideration of certain substantive comments, PHMSA is requiring a two-way EOT [end of train] device or DP [distributed power] on the rear of any train consisting of 20 or more loaded tank cars of LNG in a continuous block or 35 or more loaded tank cars of LNG throughout the train. Further, PHMSA is requiring that each rail car of LNG must be remotely monitored for pressure and location. Finally, trains consisting of an LNG tank car are subject to route planning and routing analysis requirement. PHMSA believes these operational controls, in conjunction with what is already required under the HMR [hazardous materials regulations] and the ‘Key Train.’”

    For context, rail cars can carry about 30,000 gallons (113.56 m3) each, meaning the ruling only relates to instances of fairly substantial hauls in the ballpark of 600,000 to 1,000,000 gallons (2271 to 3785 m3).

    Why It Matters

    The authorization opens a brand-new market for LNG. There are many remote industrial and residential use cases for LNG. For example, LNG can be used as a fuel source for remote assets in the oil and gas industry, like drill sites, or even farms and mining facilities. There’s also the potential to use LNG as a fuel source for the rails themselves. Mexico offers an attractive market for similar remote use cases.

    The ruling creates the first real market for transportation and sale of LNG produced and manufactured in North America, to customers in North America. Prior to the ruling, the market was one of extremes, consisting of 10,000-gallon (37.85-m3) tanker trucks or massive seafaring tanker vessels. Naturally, the authorization of LNG transport by rail will open the market for LNG to buyers that didn’t exist before, which could potentially increase natural gas prices.

    Aside from the economic benefits, there are safety benefits from the ruling as well. The Association of American Railroads (AAR) noted that, “rail is undeniably safer than over-the-road transportation of LNG, and transport via that mode should be facilitated.” Moreover, the ruling stipulates transportation by a specific kind of railcar, the DOT-113 tank car.

    According to the ruling, DOT-113 tank cars “have an established track record of safety in transporting other cryogenic flammable materials.” The ruling notes that “the DOT-113 tank car authorized for LNG service will be enhanced with an outer tank that is thicker and made of steel with a greater puncture resistance to provide an added measure of safety and crashworthiness.”

    Takeaways

    The ruling opens a new market for LNG in North America at a time when the oil and gas industry is facing relatively low oil and natural gas prices. The authorization effectively creates the first substantial local market where LNG can be transported and used in lower volumes across multiple industries.