Morgan Stanley plans natural gas export plant in new commodities foray
Morgan Stanley has quietly filed plans to build and run one of the first US compressed natural gas export facilities, the first sign the bank is plunging back into physical commodity markets even as it sells its physical oil business.
In a 23-page application to the US Department of Energy's Office of Fossil Energy submitted in May, the Wall Street bank outlined a proposal to build, own and operate a compression and container loading facility near Freeport, Texas, which will have capacity to ship 60 billion cubic feet a year of compressed natural gas (CNG).
While the size of the project is small compared with bigger liquefied natural gas (LNG) projects, the plan highlights the bank's ability to exploit its status as one of two Wall Street banks which are allowed to own and operate infrastructure for the manufacture, storage and operation of raw materials. The other one is Goldman Sachs.
Their physical commodities activities were both "grandfathered" in when they became bank holding companies during the financial crisis more than five years ago.
It also showcases a nimble and novel approach to exporting cheap domestic gas that could replace oil for power plants in Caribbean nations, as the United States pumps out record amounts of gas from its fracking revolution.
The strategy skirts the multibillion-dollar upfront investments, long lead times and stringent application processes associated with building liquefied natural gas (LNG) terminals in favor of using readily-available containers and inexpensive container ships, in one of the first projects of its kind.
The bank plans to ship CNG to countries with which the U.S. has free trade agreements, including the Dominican Republic, Panama, Guatemala, El Salvador, Honduras and Costa Rica, according to the filing, which has not been previously reported.
Those countries now mainly use oil for their power plants. Natural gas, which in the U.S. is often used to power trucks and buses, could provide a cheaper alternative.
"You can collect U.S. gas at $4, it costs you $1 to ship it and gasify it, you bring it in at $5 and the equivalent that they are paying for fuel is $20 plus," said a person familiar with the project. "There is a lot of money to be made."
A spokeswoman for Morgan Stanley declined to comment on the plan beyond the contents of the filing.