Alaska Railroad to become first in U.S. to haul liquefied natural gas

Looking for new business opportunities to counter a drop in revenues, the Alaska Railroad Corp. this month will become the first railroad in the U.S. to ship liquefied natural gas, in a demonstration project that could help deliver cheaper energy to Fairbanks.

The state-owned railroad has signed an agreement to borrow two LNG containers from a company based in Vancouver, British Columbia, owned partly by Hitachi in Japan.

Hitachi High-Tech AW Cryo, created in 2014 to manufacture and sell LNG tanks, will let the railroad use the containers for free to promote them in Alaska and elsewhere, an official with the company said.

The demonstration containers will be much smaller than the ones Hitachi Hi-Tech will sell, but at 40 feet long they will carry about 12 tons of LNG stored at about 260 degrees below zero.

Before they are put on the railroad, the cryogenic containers will be transported by truck on flatbed trailers about 70 miles to the Anchorage rail facility from the Titan LNG plant at Point MacKenzie, said Tim Sullivan, the railroad's external relations manager.

The plant since the late 1990s has superchilled natural gas from Cook Inlet into a liquid for delivery to Fairbanks. The gas is delivered to about 1,100 customers with Fairbanks Natural Gas, a sister company of Titan Alaska LNG.

Liquefied gas has traveled by truck to Fairbanks. But a new transportation option opened in October when the Alaska Railroad became the first in the United States to win a permit from the Federal Railroad Administration to transport LNG.

While LNG has been safely moved by rail for decades in Japan, the world's largest importer of the fuel, it has never been transported by a North American railroad, said Greg Rozitis, vice president of new business development for the Hitachi tank company.

"They've never had an incident in over 30 years in Japan," he said, adding LNG is safer to transport than other fuels such as crude oil or gasoline, in part because the liquid is not easily combustible and quickly evaporates if it's spilled.

"Some fumes might catch fire, but the flames wouldn't trail back to the actual LNG itself, like you might find with gasoline or crude," he said.

The containers, with an insulated inner tank of stainless steel surrounded by a vacuum seal and an outer steel tank, are expected to arrive in Alaska on Sunday. They began their journey in Japan, officials said.

After training for emergency response by officials along the route and by railroad personnel, the first rail shipment is expected to leave Anchorage Sept. 27 by flatcar for the 350-mile rail run to Fairbanks.

The containers will be loaded back onto flatbed trailers for a 4½-mile road trip to facilities at Fairbanks Natural Gas.

The railroad is planning eight round-trips over four weeks.

"We're pleased to be the first railroad to carry LNG and think we can do a good job representing the industry as a whole in how we get this done," Sullivan said.

In an unrelated demonstration project in December, Titan Alaska LNG tested an extra-large semitrailer with a cryogenic container sold by a company in Washington state. In that effort, the truck and trailer delivered about 23 tons of LNG to Fairbanks by road, more than traditional LNG trailers and with lower shipping costs per ton.

Titan has purchased one of those large semitrailers and ordered three more.

Rozitis said Hitachi is looking to prove that LNG can be moved more efficiently by rail than by truck, because many cryogenic containers can be hauled in a single rail shipment.

The Alaska Industrial Development and Export Authority, also a state corporation, purchased Titan Alaska and Fairbanks Natural Gas in 2015 as part of a $53 million deal.

AIDEA has also worked with other state entities on the Interior Energy Project first authorized by the Legislature in 2013 to find a solution to poor air quality and high energy costs in the region.

AIDEA has targeted liquefied natural gas as key to the solution, because natural gas is abundant and relatively inexpensive. It is working with a private company, Salix of Spokane, Washington, on a concept to expand LNG production from Inlet natural gas to support Interior energy needs.

Fairbanks relies largely on fuel oil and wood for heating, leading to poor air quality in winter and energy bills that rise with oil prices.

The railroad shares the goal of helping lower energy bills in Fairbanks, Sullivan said.

Fairbanks Natural Gas and Titan will participate in the demonstration project by filling the cryogenic containers at Port MacKenzie and unloading them in Fairbanks. The companies will be looking for potential savings, said Dan Britton, who runs both Titan and Fairbanks Natural Gas.

"We think it's potentially a good option for moving some LNG," said Britton.

The demonstration project will help the railroad determine the costs of delivering LNG and its potential value to the railroad, said Sullivan.

The railroad is always looking for new opportunities, Sullivan said. Net income at the corporation dropped to $11 million in 2015, down from about $14 million each of the two previous years.

Net income is expected to fall further, to $9.3 million in the current year, according to the railroad's 2015 annual report.

"Weakening global coal markets and less petroleum shipments" are cutting into revenues, although passenger income jumped 11 percent, the report said.