) has submitted its plans for setting up a compressed natural gas
(CNG) export facility near Freeport, TX to the U.S. Department of
Energy's Office of Fossil Energy, as per Reuters. The proposal to
construct an operating facility with an annual shipping capacity of
60 billion cubic feet was made in May.
Interestingly, this move has come amid the recent initiatives by
many big banks to shed their physical commodities businesses. Due
to drawbacks like higher capital requirements and lower
JPMorgan Chase & Co.
), Bank of America Corporation, Barclays PLC and Deutsche Bank AG,
among other Wall Street Biggies, have been moving away from
physical commodities businesses.
In Jul 2014, Morgan Stanley completed the divestiture of its
100% ownership in TransMontaigne Inc. - an oil storage, marketing
and transportation company to Tulsa, OK-based NGL Energy Partners
). (Read more:
Morgan Stanley Completes Sale of TransMontaigne
In Dec 2013, Morgan Stanley inked an agreement to vend its
Global Oil Merchanting unit to Russia-based Rosneft Oil Company's
wholly owned subsidiary. Considering the current backdrop, Morgan
Stanley's proposal indicates its rekindled interest in the physical
Notably, Morgan Stanley and The Goldman Sachs Group, Inc. (
) are the only two Wall Street banks which enjoy the 'grandfather'
status for any commodities activities engaged in before 1997,
courtesy of the Gramm-Leach-Bliley Act. Empowered with this status,
these banks can own and run infrastructure for the manufacture,
storage and operation of raw materials. Availing this opportunity,
Morgan Stanley will export cheap domestic CNG to countries such as
Dominican Republic, Panama, Guatemala, El Salvador, Honduras and
Costa Rica, with which U.S. has free trade agreements.
Importantly, excess production of natural gas in the U.S. has
lowered the prices to $4.02 per million British thermal units.
Further, the U.S. Energy Information Administration expects this
low price to prevail. Hence, the comparatively low-cost domestic
CNG could be a cheaper alternative for many countries. Moreover,
building up a CNG plant requires lower investment compared to a
liquefied natural gas facility. All these advantages might have
prompted Morgan Stanley to reframe its physical commodities
Nevertheless, the permission process for the project is lengthy
with many proposals in the queue. Also, there are logistics hurdles
to be crossed. All said and done, we believe that successful
realization of the proposed project will tempt many other banks to
reconsider their physical commodities business strategies.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
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