Morgan Stanley (NYSE: MS) Bets on Compressed Natural Gas

Brian Hicks

Written By Brian Hicks

Posted August 29, 2014

The Dominican Republic, Costa Rica, El Salvador, Honduras, Guatemala, and Panama use oil to fire their power plants.

As you can imagine, in today’s energy market that is an expensive endeavor.

According to experts, high global oil prices have bloated energy costs in these countries. Some say they pay more than $20 for the same amount that costs us a mere $5 for heat and electricity.

After seeing how high these prices are and how low natural gas prices are in the United States, Investment Bank Morgan Stanley has applied for a permit to ship compressed natural gas.

It may sound strange that a bank, of all businesses, would be compressing and shipping natural gas, but thanks to a provision in the 1999 Gramm-Leach-Blilely Act, Morgan Stanley and Goldman Sachs (NYSE: GS) have grandfather status that allows them to operate commodities directly.

Morgan Stanley’s move is a strategic bet in two ways…

First, if you follow their business at all you’ll know that they, along with many other banks, are selling their physical oil business.

After much pressure from federal regulators, Morgan Stanley agreed to sell their oil storage and shipping company TransMontaigne while also selling its global physical oil trading platform to Rosneft.

So in one way, they get the regulatory monkey off of their back while also getting out of the oil business and moving into natural gas, which, in the U.S., is at a historic bottom in terms of price.


As you can see above some of the lowest gas prices in the U.S. can be found in Texas and Louisiana on the Gulf Coast where the tax structure and resource base is very favorable.

And because Morgan Stanley’s facility will be in Freeport, Texas, they will get some of the cheapest gas available, which also brings me to the next reason their move out of oil and into gas is so strategically viable.

The key is that they want to export compressed natural gas (CNG) rather than liquefied natural gas (LNG). And, according to Morgan Stanley officials, the CNG facility will be much less expensive…

The most famous LNG export facility is Cheniere’s Sabine Pass terminal, where an estimated $5.6 billion is being spent to upgrade the plant from an import terminal to an export terminal.

But the Morgan Stanley gas facility will only cost between $30 and $50 million depending on the price of the shipping containers, which will be the bulk of their expenses.

So their new project looks like it will turn a nice profit if gas prices stay low, and if they pass the stringent regulatory approval required for export projects.

As far as investment goes for this deal, the only real way to play it would be to buy Morgan Stanley stock…

But if you’re looking for a more direct foray into compressed natural gas, be wary.

Even though it’s cheaper than LNG, CNG has yet to catch on despite rock bottom gas prices and $100 per barrel crude oil.

The biggest draw for CNG has been natural gas powered vehicles, which would be much more cost effective than our current rate at the pump, but this is likely a pipe dream due to lack of infrastructure.

Sure, there are CNG refueling stations, but they just are not – and will not be – as prevalent as gasoline and diesel fuel stations in the U.S.

So perhaps the best way to invest would be to stick with a natural gas driller or midstream company, and once the price of natural gas rises thanks to EPA regulations, exports, and higher demand, you will probably see the price of these stocks rise too.

Until Next Time,
Alex Martinelli

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