|
 In a 23-page application to the U.S. 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.
"VERY SIGNIFICANT"
The boom in natural gas production in the U.S. has pushed prices
down to $4.02 per million British thermal units. Natural gas
contracts sold outside of the U.S. are often linked to higher-priced
oil, which can inflate the cost of the gas.
The U.S. Energy Information Administration projects total domestic
natural gas production to hit 73.9 billion cubic feet per day,
portending sustained low prices going forward. About 1,000 cubic
feet of natural gas yields 1 million BTU. One barrel of oil is
roughly equivalent to 5,800 cubic feet of natural gas.
Billions of dollars are being poured into sophisticated export
terminals for LNG, which require specialized equipment to cool the
fuel to turn it into a liquid, as well as infrastructure to warm it
at the receiving end, and take years to build.
Cheniere Energy, for example, is investing $5.6 billion to expand
its Sabine Pass terminal in Louisiana to export LNG, which is
expected to be operational by 2015.
The permitting process is also lengthy, with almost two dozen
applications awaiting approval.
By contrast, the source familiar with Morgan Stanley's plans
estimated the cost of building the plant at $30 million to $50
million, with minimal investment needed on the receiving end. The
bulk of the expenditure would be in buying thousands of containers
to ship the gas.
"They'll lease some land, buy some cranes," he said. "But you need
literally thousands of these containers."
It will take 12 months to complete the plant from the time Morgan
Stanley receives final regulatory approvals, according to the
filing.
In November 2013, Florida-based energy company Emera CNG LLC applied
to export 9.125 billion square feet a year; the status of its
application is not clear and its lawyers and executives did not
return calls for comment in time for publication.
Andy Weissman, an energy lawyer at Haynes Boone in Washington, said
the Morgan Stanley proposal was one of the first such CNG export
projects he was aware of.
"This could be something very significant, and if it was done
successfully, there would undoubtedly be more of these," he said.
[to top of second column] |
LOGISTICS NIGHTMARE
The 50-acre proposed site in Texas is currently being inspected for
suitability, according to a second source familiar with the plans.
Freeport is a deepwater port on the Gulf of Mexico with a 45-foot
draft, and already receives large container ships carrying tropical
fruits imported by Dole and Chiquita.
Morgan Stanley will lease pre-existing loading docks there, but
plans to supply the containers itself, said the second source.
According to the filing, gas would be piped into the proposed
facility on an 11-mile third-party pipeline connected to the
Brazoria Interconnector Gas Pipeline (BIG), which moves natural gas
within Texas. Gas that travels in a pipeline is already compressed.
After further compressing and containerizing the gas, Morgan Stanley
can load the pressurized natural gas containers on standard
container ships.
"It's a logistics nightmare, putting [the gas] in containers and
shipping them around - it's hard to do. Most people can't figure out
how to make money doing it," said the second source. "For once, the
price of gas is low enough that it makes sense."
GRANDFATHER STATUS
The project marks a new foray into the physical commodity market for
Morgan Stanley after it sold the bulk of its physical oil
operations, ending its long run as the biggest physical oil trader
on Wall Street amid intense regulatory pressure.
The assets included oil storage and transport company TransMontaigne
Inc [TMG.UL] as well as its global physical oil trading operation,
which it has agreed to sell to Russia's Rosneft.
Thanks to a provision in the 15-year-old Gramm-Leach-Bliley Act,
Morgan Stanley and Goldman Sachs alone among Wall Street banks enjoy
"grandfather" status for any commodities activities they engaged in
before 1997, although the provision has never been publicly
interpreted by the banks' regulators at the Federal Reserve.
It was unclear whether the bank was using its grandfathered status
to undertake the natural gas plant. However, the appointment of two
of its commodities executives as officers of the natural gas
subsidiaries indicates they could have more day-to-day control than
in an arm's-length investment done under merchant banking authority.
The application is filed under the name Wentworth Gas Marketing LLC,
a Delaware company with a business address in Purchase, New York,
home to Morgan Stanley Capital Group, its commodities group.
Wentworth Gas Marketing and another company, Wentworth Compression
LLC, are both wholly owned by Wentworth Holdings LLC, which is
indirectly owned by Morgan Stanley.
The filing contains an agreement that Wentworth Compression will
sell CNG to Wentworth Gas Marketing , which is signed by two Morgan
Stanley commodities executives, Deborah Hart and Peter Sherk.
Hart, whose LinkedIn profile lists her as Morgan Stanley's chief
operating officer North American Power & Gas, is a vice president of
Wentworth Compression. Sherk, a managing director and co-head of
commodities trading, is a vice president of Wentworth Gas Marketing.
The Federal Reserve declined to comment on the natural gas project,
and Morgan Stanley did not answer questions about what authority it
was using to pursue it.
The filing for the project landed just months before the bank bought
Deutsche Bank's North American natural gas trading book.
(Reporting by Anna Louie Sussman, editing by Josephine Mason and
John Pickering in New York)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.
 |
