NEW YORK — Energy demand is growing faster than clean energy’s ability to fulfill it. Data centers and artificial intelligence are exacerbating the issue. New liquified natural gas (LNG) exports from the U.S. could boost prices for domestic natural gas, possibly making coal more competitive for electricity generation. All of this and more has been outlined by analysts with S&P Global Commodity Insights in its 2025 energy outlook published Dec. 11.
In addition to strong demand for electricity driving the use of more fossil fuels, the new Trump administration is likely to ease fossil fuel regulations, creating an environment for railroading’s oldest friend — coal — to step up yet again. It’ll all depend on price and if new gas and oil capacity keeps prices low and coal uncompetitive.
During President Trump’s first term in 2017, BNSF Railway — the biggest mover of coal carloads, especially in the domestic utility segment — saw a 6.4% bump in business from 2016, moving 1.9 million carloads in 2017 compared to 1.8 million the previous year. The railroad moved 116,900 more coal carloads in 2017; with 110-car trainsets, that’s 1,050 extra coal trains. At the same time, BNSF’s revenue per unit climbed 6% to an average of $2,015 per car compared to $1,901 per car in 2016. This indicates higher index-based coal benchmark prices which are tied to railroad rates. As with any market, increasing demand drives those prices higher.
Today, railroads move significantly fewer coal carloads. In 2023, BNSF moved just 1.4 million carloads. American power plants are consuming fewer coal tons as coal-fired power plants are retired or converted to natural gas.
Between 2017 and 2023, the U.S. consumed 352 million fewer tons of coal at its power plants, a 41% decrease. That’s equal to a more than 3 million carload decrease in a six-year span. The retired capacity will not come back regardless of how much energy demand exists.
But railroads are more resilient today than they were years ago and capacity, and manpower, makes it easier for Class I railroads to handle more coal business if needed. Eastern Class Is CSX Transportation and Norfolk Southern ramped up resources in coal country to handle the export thermal and metallurgical coal boom at the pandemic’s outset. When metallurgical coal prices surged to never-before-seen highs, railroads were hiring left and right, removing hoppers from storage, and returning stored locomotives to service. Met prices have cooled off, but railroads are better at ebbing and flowing with coal’s volatility.
With not enough clean energy capacity to displace fossil fuels, coal could rally in 2025 if natural gas prices tick upward.
Policy changes possible for LNG by rail
“The uptick in exports will put significant strain on the domestic U.S. natural gas market as feedgas demand picks up faster than production can respond,” analysts say in the S&P report. “This is likely to pull inventories back into a relative deficit compared to five-year average levels throughout most of the year and put upward pressure on cash prices across the country, although higher prices are expected especially in the Gulf Coast of the U.S.”
The analysts expect “significant change in 2025 after two years of relatively limited growth” in LNG; of the 27 million metric tons of new supply coming online next year, almost 90% is expected from North America. This includes projects in Corpus Christi, Texas; Plaquemines, La.; Mexico, and Canada.
This new capacity will come online at the same time federal regulators decide what to do about LNG by rail. A ruling in 2020 shelved further decision making until June 30, 2025, or until the completion of a process determining whether any changes to the 2020 rule are required. During Trump’s first term, an executive order in April 2019 directed the U.S. Department of Transportation to authorize the movement of LNG in tank cars within 13 months. By June, regulators were taking steps to begin allowing LNG to move by rail.
But in 2020, DOT’s Pipeline and Hazardous Materials Safety Administration, in partnership with the Federal Railroad Administration, decided suspending a 2020 ruling on LNG by rail was in the public’s best health and safety interests. This allowed regulators more time to explore public risks and complete more testing and evaluation of LNG movements across the U.S. freight rail network [see “Federal regulators pause controversial rule …,” Trains News Wire, Sept. 5, 2023].
This sidelined a number of LNG projects due to regulatory uncertainty.
Since then, LNG by rail has been allowed under special permitting, but projects have faced scrutiny and denied permits. Last year, the U.S. DOT turned down a request for a permit to transport LNG by rail from Pennsylvania to a terminal on the Delaware River [see: “U.S. DOT denies permit …,” News Wire, April 27, 2023].
If new policymaking creates a more favorable opportunity for LNG-by-rail, this could be another avenue for railroads to bolster and diversify its energy business.
Regardless of what comes to fruition in the New Year ahead, a strong demand for energy is a guarantee and an already tired electrical grid means energy is going to be a recurring subject of discussion. Railroads are likely to be in the crosshairs of these conversations and can hopefully scoop up carloads where it makes sense.
