(Repeats story originally published overnight)
By Edward McAllister
NEW YORK, June 16 (Reuters) - As politicians debate thedangers of a massive increase in oil carried by rail in NorthAmerica, railroads and energy producers are considering the samefor natural gas.
Buoyed by the unexpected success of crude by rail, companiesare beginning to consider transporting natural gas as remotedrilling frontiers emerge beyond the reach of pipelines,executives said.
Natural gas by rail is years away and likely to face strongpublic resistance after a series of explosive crude-by-railaccidents. But the potentially multibillion-dollar developmentcould connect gas-rich regions like North Dakota with urbancenters, presenting an opportunity for railroads, drillers andtank car makers already cashing in from hauling oil on trains.
It could also be a cure for environmentally unfriendlyflaring, a growing problem in far-flung areas where more than $1billion of natural gas produced alongside oil is burned off eachyear for lack of processing plants or pipelines that can takeyears to build.
"Everyone is talking about moving gas by rail," said DavidDemers, chief executive officer of Westport Innovations, which is developing technology for natural gas-poweredlocomotives. "They see this as a large opportunity and havetheir pencils out to see how it could work."
Demers said Berkshire Hathaway's BNSF was onerailroad considering the move.
BNSF declined to comment on its plans, but a spokeswomansaid it would take time for any development of gas by rail.
Transporting gas by rail, most likely as cryogenic liquefiednatural gas (LNG), faces obstacles. The technology is in itsinfancy, and so far no tank car is permitted to carry the fuelon U.S. rails. Nor are there enough plants that convert naturalgas to LNG to support a robust gas-by-rail market, experts said.
More-volatile liquids like ethylene and propane alreadytravel on the rails in growing volumes. But as concerns aboutthe safety of crude by rail intensify, regulators are exercisingextreme caution with uncertified fuels like LNG, said executivesinvolved in developing the technology.
Stressing that it is too early to say, many of the majorClass 1 railroads that have embraced crude by rail declined tospeak about specific plans for gas by rail. Calgary-basedCanadian Pacific Railway Ltd, for example, was just"monitoring any discussions in this area," a spokesman said.
Breitling Energy Corp CEO Chris Faulkner said heand other gas producers were discussing the idea, but hiscompany was not considering it.
"I can only imagine the amount of pushback we're going tohave on transporting gas by rail," Faulkner said. "Thediscussion isn't about safety and fact, it's about fear."
But as railroads team up with companies like GeneralElectric Co and Caterpillar Inc to developtechnology to run locomotives on LNG, many say that hauling thefuel as cargo is the next step as a drilling revolutiontransforms North American energy markets.
"A LOT OF MONEY"
LNG, natural gas cooled and shrunk to a liquid for shipping,already powers heavy-duty trucks and boats in the United Statesand Canada. A network of fueling stations is cropping up withbacking from the likes of Royal Dutch Shell Plc andClean Energy Fuels Corp.
Small-scale refrigeration plants that can turn gas to LNGare being built in drilling regions to reduce gas flaring. Inremote North Dakota, one-third of the gas produced is flared.
Now, gas by rail is emerging as a possibility. Energyproducers have approached Jacksonville, Florida-based CSX Corp about moving LNG by rail, said Louis Renjel, vicepresident of strategic infrastructure initiatives, but thecompany has no plans to do so.
Westport Innovations has been approached about developingfuel systems for tank cars that would haul LNG as cargo,according to Paul Blomerus, director of the company's highhorsepower sector.
"They make a lot of money transporting oil, so it would makesense" to do the same with gas, Blomerus said.
BNSF is testing LNG-powered locomotives and million-dollartank cars that would hold the fuel, the first step in a planannounced last year to wean trains off costly diesel.
Regulators and railroads last year established a task forceto establish standards for LNG rail cars. A spokesman for theU.S. Federal Railroad Administration said there was no specifieddeadline for drafting actual rules.
Building these tank cars would be "a natural progressioninto hauling LNG, similar to what we do with crude oil," saidKen Webster, chief accounting officer at Chart Industries Inc.
Outside North America, steps have already been taken. Chartis developing an LNG tank car in Germany in a joint venture withHamburg-based manufacturer VTG Aktiengesellschaft.
Japan Petroleum Exploration Co began transportingLNG by train in 2000 by loading specially designed tanks ontorailcars, supplying local distributors in regions beyond thereach of gas pipelines. The company says the trains have provencheaper than trucks in supplying LNG.
EXTRA PRESSURE
Crude by rail has been a lesson not just in how quickly anew transport can emerge but also in the dangers.
An unmanned train carrying crude oil from North Dakota'sBakken region exploded and killed 47 people in the center of theCanadian town of Lac Megantic in July.
Among a string of other accidents, 21 oil tank cars on aBNSF train caught fire after a crash in Casselton, North Dakota,in December.
As concerns grow, a movement against new crude traininfrastructure has emerged.
This has "paced" if not slowed progress in rail transport offuels, said Tina Donikowski, who heads a team developinggas-powered locomotives at General Electric.
"The Federal Railroad Administration is being verycautious," Donikowski said. "They most definitely feel the extrapressure with the problems of crude by rail." (Reporting by Edward McAllister; Editing by JessicaResnick-Ault and Lisa Von Ahn)
