American Gas - July 2014 - (Page 11)

BY THE NUMBERS LNG is likely to play an increasing role in powering freight locomotives, the U.S. Energy Administration projects in its new Annual Energy Outlook 2014 report. However, while there is appeal for major U.S. railroads to use LNG, there are key uncertainties as to whether the railroads can take advantage of it. PRICE DIFFERENTIAL: RAILROAD DIESEL FUEL VERSUS LNG 4 2012 dollars per gallon diesel equivalent The large differential between crude oil and natural gas commodity prices translates directly into a significant disparity between projected LNG and diesel fuel prices, even after accounting for natural gas liquefaction costs that exceed refining costs. In the reference scenario for EIA's Annual Energy Outlook, the long-run price difference between locomotive diesel fuel and LNG in rail applications increases from $1.48/gallon of diesel equivalent in 2014 to $1.77 in 2040. DIESEL 3 2 $1.34 $1.48 LNG SAVINGS PER GALLON $1.77 $1.59 1 LNG 0 2014 2020 2025 2030 2035 2040 NPV OF FUEL SAVINGS FOR LNG LOCOMOTIVES in trillion BTU The net present value of future fuel savings across the reference case projection for an LNG locomotive compared to a diesel counterpart is well above the roughly $1 million higher cost of the LNG locomotive and tender, according to EIA. Relatively large changes in assumptions used to evaluate investments in LNG locomotives (such as a significantly higher payback period or much higher discount rate) or in fuel prices would be required to change LNG fuel economics for railroad use from favorable to unfavorable. 25 POSITIVE ECONOMICS FOR LNG USE REFERENCE CASE: 15-year payback, 11% discount Payback years 20 15 15-year payback 20% discount 10 5 7-year payback, 11% discount rate NEGATIVE ECONOMICS FOR LNG USE 0 22% 20% 15% 5% 11% Discount rate 1% FUEL COST SAVINGS FOR A NEW LOCOMOTIVE IN THREE CASES 2.5 2020 2025 2030 2035 2040 Net present value, million 2012 dollars 3.0 2.0 $1 MILLION INCREMENTAL COST FOR LNG LOCOMOTIVE AND TENDER 1.5 1.0 .5 0 High Oil Price Reference Low Oil Price Source: Energy Information Administration, Annual Energy Outlook 2014 JULY 2014 AMERICAN GAS ALEX REARDON Uncertainty about future fuel prices poses a degree of risk for railroad companies switching to LNG. While the economics of LNG adoption are quite attractive in a scenario of high oil prices, in the low-price case, the net present value of fuel cost savings associated with LNG use is not large enough to offset the higher additional upfront cost of LNG locomotives and tenders. Other challenges standing in the way of large-scale adoption of LNG for rail use include the lack of fuel delivery infrastructure and regulatory hurdles, EIA said. 11

Table of Contents for the Digital Edition of American Gas - July 2014

Contents

American Gas - July 2014

https://www.nxtbook.com/nxtbooks/aga/20151201
https://www.nxtbook.com/nxtbooks/aga/201411
https://www.nxtbook.com/nxtbooks/aga/201410
https://www.nxtbook.com/nxtbooks/aga/20140809
https://www.nxtbook.com/nxtbooks/aga/201407
https://www.nxtbook.com/nxtbooks/aga/201406
https://www.nxtbook.com/nxtbooks/aga/201405
https://www.nxtbook.com/nxtbooks/aga/201404
https://www.nxtbook.com/nxtbooks/aga/201403
https://www.nxtbook.com/nxtbooks/aga/201402
https://www.nxtbook.com/nxtbooks/aga/20141201
https://www.nxtbook.com/nxtbooks/aga/201311
https://www.nxtbook.com/nxtbooks/aga/201310
https://www.nxtbook.com/nxtbooks/aga/20130809
https://www.nxtbook.com/nxtbooks/aga/201307
https://www.nxtbook.com/nxtbooks/aga/201306
https://www.nxtbook.com/nxtbooks/aga/201305
https://www.nxtbook.com/nxtbooks/aga/201304
https://www.nxtbook.com/nxtbooks/aga/201303
https://www.nxtbook.com/nxtbooks/aga/201302
https://www.nxtbook.com/nxtbooks/aga/20131201
https://www.nxtbook.com/nxtbooks/aga/201211
https://www.nxtbook.com/nxtbooks/aga/201210
https://www.nxtbook.com/nxtbooks/aga/201208
https://www.nxtbook.com/nxtbooks/aga/201207
https://www.nxtbook.com/nxtbooks/aga/201206
https://www.nxtbook.com/nxtbooks/aga/201205
https://www.nxtbook.com/nxtbooks/aga/201204
https://www.nxtbook.com/nxtbooks/aga/201203
https://www.nxtbook.com/nxtbooks/aga/201202
https://www.nxtbook.com/nxtbooks/aga/201112
https://www.nxtbook.com/nxtbooks/aga/201111
https://www.nxtbook.com/nxtbooks/aga/201109
https://www.nxtbook.com/nxtbooks/aga/201108
https://www.nxtbook.com/nxtbooks/aga/201107
https://www.nxtbook.com/nxtbooks/aga/201106
https://www.nxtbook.com/nxtbooks/aga/201105
https://www.nxtbook.com/nxtbooks/aga/201104
https://www.nxtbook.com/nxtbooks/aga/201103
https://www.nxtbook.com/nxtbooks/aga/201102
https://www.nxtbook.com/nxtbooks/aga/201012
https://www.nxtbook.com/nxtbooks/aga/201011
https://www.nxtbook.com/nxtbooks/aga/201010
https://www.nxtbook.com/nxtbooks/aga/201008
https://www.nxtbook.com/nxtbooks/aga/201007
https://www.nxtbook.com/nxtbooks/aga/201006
https://www.nxtbook.com/nxtbooks/aga/201005
https://www.nxtbook.com/nxtbooks/aga/201004
https://www.nxtbook.com/nxtbooks/aga/201003
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