Here's the Next Revolution for the Train Industry

Here's the Next Revolution for the Train Industry

Natural gas as a transportation fuel is a hard sell to the general population. However, fleet vehicles have been happily making the switch. Staring next year, railroad CSX will be testing out new gear from General Electric that will allow trains to run on either natural gas or diesel—big news for an industry that last made a fuel switch over 50 years ago.

Cars and trucks
Clean Energy's focus is to get natural gas deeper into the transportation industry. It's concentrated on fleet vehicles since the gasoline infrastructure is too deeply ingrained in the individual market. Although it's been slow going at times, this effort is starting to gain traction.

For example, the company estimates that 60% of all new garbage trucks sold this year will be powered by natural gas. That's up from less than 10% just five years ago. And the company has partnered with big industry players like Waste Management along the way. That trash hauler estimates that each natural gas powered truck reduces diesel use by 8,000 gallons a year, cutting both fuel and maintenance costs, and reducing emissions.

That's why both are happily pushing forward with natural gas—Waste Management, for example, has the largest gas powered fleet in the trash industry. And Clean Energy is working on a similar fuel switch in the long-haul truck space, which it believes is a $25 billion market opportunity. It's working with GE on that, recently inking a deal with the conglomerate's finance arm to provide loans for natural gas truck purchases.

More than trucks...
General Electric, however, has its sights on more than just the nation's highways. It has been building fueling solutions that could be installed at individuals' homes -- a long-shot idea -- and on shifting trains to natural gas. The latter is an idea that is ready to roll in a big way.

GE is partnering with CSX to test equipment that will allow a train to run on either diesel or natural gas as early as next year. Offering both fuels is a huge benefit for the train companies because it provides them with the ability to use the cheapest fuel now and in the future should natural gas prices rise. In fact "LNG technology has the potential to offer one of the most significant developments in railroading since the transition from steam to diesel in the 1950s," according to CSX.

Natural gas' low price has driven increased demand from various industries. Being at the forefront of the adoption of natural gas technology in so many different ways is a huge benefit for GE, which also provides products and services in the drilling space. Although the industrial giant is much larger than this one niche, look for natural gas to play an increasingly important role at the company.

For CSX and the other train companies, meanwhile, you could soon start to see discussions of fleet conversions and cost savings—just like what's taking place in the trash space with companies like Waste Management. And it's a good bet that Clean Energy won't be far behind in trying to provide services to CSX and its peers.

For example, Clean Energy supplies natural gas to some 400 fueling stations but it doesn't own all of them. Since neither GE nor CSX is likely to turn into a natural gas company, Clean Energy could easily enter the picture to supply the natural gas to power CSX's trains. That's even more likely since the GE/CSX test involves liquified natural gas, or LNG. LNG requires a process to create and Clean Energy has quickly become an expert at doing it.

The future is now
Natural gas is quickly gaining traction in the transportation industry. If the GE/CSX text works out, look for railroads to begin a multi-year switch to the fuel like what's transpiring now at companies like Waste Management. That will be a boon for General Electric and likely Clean Energy, too.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels and Waste Management. The Motley Fool owns shares of CSX, General Electric Company, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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