BNSF Railways, the transportation company owned by billionaire Warren Buffett's Berkshire Hathaway, will test using liquified natural gas (LNG) to power some of its locomotives, it was announced recently. Most freight trains in the United States are currently powered by diesel fuel. BNSF says LNG would produce fewer greenhouse gases and particulate emissions than diesel.

News of the upcoming test broke on March 5 in the Wall Street Journal ahead of the official corporate announcement on March 6.

"The use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry," BSNF chairman and CEO Matthew Rose said in a prepared release. "While there are daunting technical and regulatory challenges still to be faced, this pilot project is an important first step that will allow BNSF to evaluate the technical and economic viability of the use of liquefied natural gas in through-freight service, potentially reducing fuel costs and greenhouse gas emissions, thereby providing environmental and energy security benefits to our nation."

As the Journal reported, the company has a few regulatory and technological hurdles to overcome before they can start testing LNG. Federal regulators must weigh in on fuel-tank safety. Meanwhile, new systems would need to be build to deliver the gas to the locomotives and depot workers would need to be trained in using the new fuel. BSNF reported that that it is working with GE and EMD to develop things on the technology side.

In addition to reducing emissions, BNSF could dramatically reduce its costs by burning LNG, which would be about 88% cheaper than diesel.

Meanwhile, Buffett's railways are due to profit from another fossil fuel: oil. The increase in domestic oil production means all of that new crude oil needs to be shipped somehow and Berkshire Hathaway's railways already ship about 10% of the oil produced in the country every day. Buffett's company also owns Union Tank Car (UTLX), which owns and manufactures train cars. In his annual letter to shareholders (pdf), Buffett notes that a train car sells for "upward of $100,000" and it has enough orders on hand to extend "well into 2014."

Buffett expects both parts of his railway business to benefit from oil. "All indications are that BNSF’s oil shipments will grow substantially in coming years," he wrote in his investor letter.

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