The shale renaissance has helped push up shipment of petroleum products via rail, with U.S. Class I railroads originating 256% more carloads of crude in 2012 compared with the previous year.

The statistic, shared by BNSF Railway Co. Chief Executive Matthew Rose during the Summer NAPE conference, was among the ways that shale plays are impacting the rail industry. Total unconventional oil production has increased 67% in the last three years, while Bakken production is up 80%, Rose said. “These numbers are certainly staggering and reflect what we are seeing on the railroad as well.”

Rose anticipates BNSF crude rail shipments could reach 800,000 bbl. per day by year-end 2013, up from about 600,000 bbl. per day.

“Crude isn’t the only place where we are feeling the impact of the boom,” Rose said. The rail industry also is experiencing growth brought on by items needed at drill sites, such as sand, pipe and cement.

“Each horizontal drilling rig requires around 40 inbound carloads of products.”

Using production from Williston basin as an example, Rose pointed out how rail has become the leading transport of choice for crude oil production. In 2010, 74% of crude oil was transported via pipeline from the Williston, while only 6% was transported via rail and 20% by other means. In 2013, rail was up to 69%, while transport via pipeline fell to 23%. Despite the growth seen in the Williston, pipelines haven’t lost their position as a key competitor to BNSF and the rail industry.

“We know that rail on the surface is without a doubt the most efficient and the lowest price, but when we start to compete against pipelines,” Rose said, “we know we are the higher cost, but we can offer some flexibility.”

Other forms of transport don’t have the network in place to move the crude where it needs to go, Rose said, noting BNSF’s networks are spread across the country. Currently, the company serves 17 origin facilities across the western shale plays, and 10 more are being developed.

BNSF expects to have 50 destination facilities by year-end 2014.

And fuel costs are significant for BNSF, which burns just more than 1.4 billion gallons of diesel per year to run its locomotives. Fuel costs make up about 30% of the company’s overall cost, which is why the company will start testing LNG as a fuel source for its fleet, Rose said.

The concept is not new, as BNSF pointed out in a news release that predecessor Burlington Northern used gas locomotives in the 1980s and 1990s, and BNSF tested LNG switch locomotives in Los Angeles.

“Improved economics and technology make the use of natural gas in long-haul service more operationally feasible today,” the company said. “The BNSF pilot will be a first step to consider how the technology could be implemented. However, even though natural gas in long-haul service has enormous potential, several significant regulatory challenges need to be addressed.”

Working with locomotive builders GE and Caterpillar subsidiary EMD, BNSF is developing gas-engine technology for use in the pilot. Rose is confident that the technology is there.

But regulatory hurdles remain with some agencies, including the U.S. Environmental Protection Agency and the Federal Railroad Administration. “All three have a say-so on whether we can actually make this conversion.”

BNSF will operate under a waiver initially. The tests on natural gas engine technology will begin this fall.

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