BNSF Railway Co expects its shipments of North Dakota Bakken crude oil to markets to surge by more 33 percent this year, Chief Executive Matt Rose said.

"It's been very fast growth," he said of the logistics phenomenon that increasingly moves booming inland U.S. oil production to refining hubs throughout the country.

"We're hauling about 525,000 barrels per day, and by the end of the year we will be hauling 700,000 barrels per day," he told Reuters, in an interview at the annual CERAWeek energy conference in Houston.

The nation's largest railroad , owned by Warren Buffett 's Berkshire Hathaway , also announced that it will run some locomotives on liquefied natural gas rather than diesel this year to test viability of switching from more expensive diesel fuel. BNSF uses 1.3 billion gallons of diesel per year.

The American Railroad Association in December published a report that said overall crude-by-rail shipments could "easily" surpass 600,000 barrels per day in early 2013 -- more than three times the amount hauled in all of 2011.

Dismissed by some as a stopgap measure to move crude until more efficient pipelines catch up, refiners are increasingly betting that crude-by-rail will co-exist with pipelines as a more flexible option.

PBF Energy Inc Chairman Tom O'Malley said last month that the company expects crude by rail to be a "very, very long-term trend," and PBF aims to use it to bring cheap Canadian crude to its East Coast refineries to turn losses into profits.

Phillips 66 in January entered into a five-year deal to ship North Dakota Bakken crude to its New Jersey refinery on Canadian Pacific's rail network.

Rose said that BNSF's crude-by-rail plan began five years ago during a dinner conversation in Houston with Mark Papa, Chief Executive of major Bakken producer EOG Resources Inc

Papa told Rose the oil industry was on the verge of a major technological breakthrough to tap vast deposits of oil through hydraulic fracturing, or fracking. Papa told him that EOG was increasing its production, but the project lacked infrastructure to move more crude to markets.

"He said you guys have a railroad , you have these tank cars and we'd like to give this shot to load your tank cars up and move this oil around," Rose said.

"I said I'd never heard of hydraulic fracturing, but I know something about running a railroad so maybe we can do a deal here," he said.

BNSF took a page from its existing agricultural products operations, building facilities that could load crude onto railcars in 100-car unit trains - a more efficient way to move crude by rail than in so-called manifest shipments, where crude cars share the train with cars carrying other cargoes.

Now BNSF has 10 loading facilities in the Bakken play that move out seven 100-railcar unit trains of crude per day. The railroad is looking at other shale plays as well, including the Eagle Ford shale and Permian basin in Texas where several pipeline projects have been built or are under way to move crude to the U.S Gulf Coast refining hub.

"In the other shale plays, there will be a lot of crude by rail, but there will also be a lot of crude by pipe," Rose said, referring to the Texas plays. He said the Bakken offers a growing and unique opportunity to move crude by rail to the East and West coasts.

Rose said as crude by rail grows, unit trains will run on rails owned by different railroads.

"At the end of the day, this will be a network of origins and destinations," he said.

LNG-Powered Locomotives

Rose also said the pilot program to run some locomotives powered by natural gas could, if successful, lead to a system-wide fuel switch. Cheaper natural gas provides a significant cost benefit to switching fuels for long-haul trains traveling several hundred miles, he said.

BNSF is working with two locomotive manufacturers, GE Transportation and Caterpillar unit EMD, to develop technology for natural gas engines that the largest U.S. railroad will use.

He said the plan could require an investment of $5 billio