N. California College of Construction News Blog

See the Difference a Small College can Make!

March 7, 2013

Posted by nahetsblog on March 7, 2013

GE Races Caterpillar on LNG Trains to Curb Buffett Cost

By Tim Catts – Mar 6, 2013 9:01 PM PT

General Electric Co. (GE) and Caterpillar Inc. (CAT), the world’s largest locomotive makers, are rushing to develop natural gas-powered models in a potential shift from diesel’s six decades as the fuel of choice for railroads.

Three of the biggest U.S. rail carriers — Berkshire Hathaway Inc. (BRK/A)’s Burlington Northern Santa Fe LLC, Union Pacific Corp. (UNP) and Norfolk Southern (NSC) Corp. — are working with manufacturers on using gas as an alternative power source for freight trains. CSX Corp. is studying the technology.

Tapping the nation’s glut of gas as a transportation power source opens a new front in the global competition between GE and Caterpillar. Liquefied natural gas holds the promise of cutting railroads’ costs, curbing greenhouse-gas emissions and ushering in the industry’s biggest change in fuel technology since diesel displaced steam in the 1950s.

“We are entering a new era where natural gas will be a major fuel,” Lorenzo Simonelli, chief executive officer of GE’s transportation unit, said in an interview. “If you believe the price advantage over diesel is going to stay here for the next 10 to 15 years, then LNG is a revolutionary fuel.”

Industrial goods such as locomotives and energy equipment are part of GE Chief Executive Officer Jeffrey Immelt’s push to emphasize manufacturing and shrink the finance unit, an initiative started after credit-market disruptions jeopardized the company. Caterpillar began its dedicated rail business with the 2006 acquisition of Progress Rail.

‘Tremendous Increase’

GE has more than tripled to $23.67 from a low of $6.66 during the financial crisis. The company’s stock now trades at premiums of 50 percent to Caterpillar and 2.5 percent to the Standard & Poor’s 500 Railroad Index, on a price-earnings basis. Caterpillar fell 0.6 percent to $89.64 yesterday in New York.

“In the last 12 months, there’s been a tremendous increase in activity around LNG within North America,” Simonelli said. “In the not-too-distant future, you’ll see some announcements being made about how we can apply LNG into a locomotive.”

Fuel trails only employee compensation among American railroads’ expenses, spurring a search for cheaper alternatives. Union Pacific, the largest U.S. railroad by revenue, burned 1.09 billion gallons of fuel last year at an average price of $3.22 a gallon, according to SEC filings.

LNG Switch

That’s significantly costlier than liquefied natural gas. It costs truckers $2.99 to buy LNG with the same energy content as a gallon of diesel at Clean Energy Fuels Corp. (CLNE)’s Port of Long Beach facility, the world’s largest LNG fueling station, said Gary Foster, the company’s spokesman. That’s before volume discounts that can reduce the price by as much as 30 percent, he said, meaning some customers pay as little as $2.10.

Railroads are turning to locomotive makers, including Fairfield, Connecticut-based GE and Peoria, Illinois-based Caterpillar, for engines that can help them take advantage of those savings.

“We’re spending some money on LNG to see if there’s an opportunity to switch from diesel,” Matt Rose, Burlington Northern’s CEO, said in an interview in January. “We’re working with both of our manufacturers as well as a bunch of suppliers on that.”

Warren Buffett, Berkshire’s billionaire CEO, said Burlington Northern will begin tests with natural gas locomotives this year during a March 4 interview on CNBC. Buffett bought the Fort Worth, Texas-based railroad for $27 billion three years ago in the largest acquisition of his career.

Customer Requests

“A lot of the customers have come to us seeking us to develop the technology,” William Ainsworth, CEO of Caterpillar’s Progress Rail Services unit said in a telephone interview. “They’ve already run models on the fuel savings. It’s not that we have to pitch the fuel savings. We’ve just got to get the technology right.”

Caterpillar, the world’s largest maker of diesel and natural gas engines, expects to run a pilot program in North America with a locomotive engine that uses a mix of diesel and natural gas later this year, Ainsworth said.

While the manufacturer has been in the natural gas-engine business for years, the company began focusing on technology for locomotives a little over a year ago, he said in a telephone interview.

Building an engine to run predominantly on liquefied natural gas with a smaller amount of diesel mixed in, a necessary step to maintain hauling power, is complex and the technology is in the “early development stage,” Tom Lange, a spokesman for Omaha, Nebraska-based Union Pacific, said in an e- mail.

Safety Standards

That hasn’t stopped the freight rail industry from exploring the ramifications of a move toward natural gas. Union Pacific is leading a task force put together by the Association of American Railroads that’s reviewing safety standards for special fuel cars that trains will need since LNG is less energy-dense than diesel. The panel is also studying ways to ensure LNG-powered locomotives can be used across all of the largest railroads’ networks.

“Union Pacific is exploring the potential to use LNG, but it’s still very much in the early analysis phase,” Lange said. “We are working closely with locomotive and engine manufacturers, cryogenic fuel-tank suppliers and natural gas/LNG suppliers to complete our analysis.”

Logistical Hurdle

CSX (CSX), the largest railroad operating primarily in the eastern U.S., is “open to this technology and believe it is potentially viable but there’s still a lot of work to be done,” Kristin Seay, a spokeswoman for the Jacksonville, Florida-based company, said in an e-mail.

Norfolk Southern is working with locomotive manufacturers and studying compressed natural gas-powered engines in addition to LNG, said Robin Chapman, a spokesman for the Norfolk, Virginia-based railroad.

In addition to the technological challenge of developing a locomotive that can run on natural gas, the rail industry also faces the logistical hurdle of bringing the fuel to its networks, said Paul Bingham, an economist at CDM Smith, an Arlington, Virginia-based consulting firm.

“The Class 1 rails will make the investment and put in the fueling systems, but they still have to get the gas to those locations,” Bingham said in a telephone interview. “Some other third party is going to have to play in that.”

That may provide another opportunity for GE, which makes equipment it says can liquefy natural gas at any point along a distribution network. GE sold two of the so-called MicroLNG units to Seal Beach, California-based Clean Energy Fuels last year to help create a coast-to-coast network of LNG fueling stations for trucks.

“Like the move from steam to diesel, if it’s going to be that radical a transformation, that’s a lot of opportunity for sales in a lot of places,” Tony Hatch, an independent transportation consultant based in New York, said in a telephone interview.

BNSF Railway Working With Caterpillar, GE to Test Gas in Locomotives

By Jennifer Booton

Berkshire Hathaway’s (BRK.A) locomotive division, BNSF Railway, one of the world’s biggest consumers of diesel, confirmed Wednesday that it will undergo a pilot this year where its freight trains will use natural gas rather than diesel.

It’s a move BNSF Railway CEO Matthew Rose said will allow the company to evaluate the “technical and economic viability” of natural gas, which he said could serve to lower locomotive fuel costs.

“The use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry," Rose said.

BNSF has been working with locomotive manufacturers General Electric (GE) and Caterpillar’s (CAT) EMD unit to develop the natural gas engine technology that will be used for the pilot.

The company still has to overcome technical and regulatory challenges, however Rose said the pilot nevertheless marks an important step in the transition to liquefied natural gas in through-freight service, potentially reducing fuel costs and greenhouse gases.

Oil has long been the primary source of fuel for jets and trains, yet the switch by BNSF may serve to lower diesel’s dominance in transportation. Improved technologies have boosted gas reserves, lowering the price of gas and making it a much more fiscally attractive compared with its costly oil counterpart.

BNSF, a division of Warren Buffett’s Berkshire Hathaway, plans to pilot the use of gas to operate its massive portfolio of freight locomotives, responsible for shipping anything from Boeing (BA) aircraft parts to crude oil.

In an interview with The Wall Street Journal, Rose said the freight train sector has not seen such a historic transition since it shifted from stream engines.


3 Downside Risks That Investors Should Not Gloss Over With Caterpillar

Caterpillar, Inc. (CAT) seems to be a very popular stock and it is easy to see why, when this company makes some of the coolest earthmoving equipment in the world. Caterpillar equipment is used in many industries which includes construction, farming, mining, heavy infrastructure, and others. Because of this, Caterpillar is dependent on the health of the global economy. While this company has a great brand name and it manufactures very high quality products, it seems that some investors "gloss over" the challenges and potential risks that should be considered more thoroughly. Here is a look at some of these potential risk factors:

1) Caterpillar makes heavy machinery that is often used in the coal industry and in the mining of precious and other metals, such as iron ore. The coal industry is facing major challenges as the price of coal has plunged due to increased use of natural gas by many utilities. Demand for coal and iron ore (which is used to make steel) from China has been weak as well, and this dynamic could persist or even get worse as fears over a property bubble in China linger. With precious metals prices facing a decline recently, expansion plans at many companies might be put on hold and lower demand for mining equipment.

2) Even though the U.S. economy is seeing some bright spots in areas like housing, that may not be enough to outweigh a number of very serious potential challenges that the economy is facing. The United States could easily slip back into a recession, especially as a 2% payroll tax increase that was introduced in January starts to bite into consumer spending. Additionally, the recent "Sequestration" budget cuts could impact a number of major industries and even cause layoffs or work furloughs for certain government employees. The impact of these budget cuts might trickle into the general economy over the next few months.

3) Many global macro economic issues remain and any one of these could create a major financial crisis or a double dip recession. The economy in Europe remains weak and many countries are faced with very high unemployment. Spain and Greece are facing unemployment rates of over 20%, and other countries like France are seeing these numbers trending in the wrong direction. While Europe seemed to be back in control of a debt crisis in recent weeks, election results in Italy has now reminded investors how fragile the current situation remains. The concern is that if Italy votes in the wrong leaders who want to push back against austerity measures, it could lead to a chain of events that causes Italy to leave the European Union and the Euro currency and possibly lead to Spain leaving as well. This type of event could create a financial crisis that is not priced into the market now as the S&P 500 Index (SPY) trades near all time highs.

Caterpillar opens ME parts distribution center

US-based Caterpillar, a leading manufacturer of construction and mining equipment, today opened its new parts distribution center in Dubai.

The 500,000 sq ft Middle East Distribution Center (MEDC) employs 130 people and will further strengthen aftermarket parts support in the East-Africa and Middle East region.

The facility will also serve as a regional office for employees from other Caterpillar service groups. The Middle East Distribution Center joins four distribution centers in the US.

In addition, construction is underway for new distribution centers in Queensland, Australia, and San Luis Potosi, Mexico.

“We are very pleased to be adding the Middle-East Distribution Center to our industry leading global parts network," said Steve Larson, Caterpillar vice president with responsibility for parts distribution and logistics, and president of Caterpillar Logistics Services.

“With the outstanding product support capability of Cat dealers in the region and the improved parts availability this operation will deliver, we will continue providing customers an unmatched level of after-sale support.”

The Middle East Distribution Center will increase total warehouse capacity for the Europe, Africa and Middle East (EAME) network, adding to existing Distribution Centers in Grimbergen, Johannesburg and Moscow.

“We are excited about our overall growth opportunities in the Middle East and Africa markets and, along with our dealers, are investing in expanding our facilities,” said Nigel Lewis, Caterpillar vice president with responsibility for EAME Distribution.

“The Middle-East Distribution Center is the first of a number of investments we are making in the region that will allow us to improve parts and components availability and the delivery process to our dealers and customers."

The facility will also contribute to Caterpillar’s sustainable development goals by reducing airfreight for parts ordered in the region.

“We are delighted to be a part of the opening of Caterpillar’s new Parts Distribution Center in Jafza. Caterpillar’s expansion underlines the company’s vision and commitment to the region. We are sure the new facility will enable them to further strengthen Caterpillar’s strong presence in the region. We wish them great successes and growth in the Middle East,” said Salma Ali Saif Bin Hareb, chief commercial officer of Economic Zones World & Jafza.

The Middle East Distribution Center is an important part of Caterpillar’s overall plan to enhance the global Cat Parts distribution network and get parts to dealers and customers faster. – TradeArabia News Service

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: