Morgan Stanley is looking at the sale of a nascent natural gas export business after the Federal Reserve raised concerns about the risks of shipping compressed gas to the Caribbean.
The venture was an audacious attempt to start a physical commodities operation at a time when much of Wall Street has been retreating from the market under regulatory and political pressure.
Bank commodities executives had estimated that the business – once codenamed “Project Venezuela” – would be worth at least hundreds of millions of dollars once it began exporting compressed natural gas from the US to power plants in countries including Panama and the Dominican Republic, people briefed on the matter said.
Industry insiders say senior commodities executives might use a sale as an opportunity to leave Morgan Stanley as the bank reduces its presence in energy markets it long dominated.
Simon Greenshields, the bank’s co-head of commodities in New York, has made contact with possible buyers.
In July Morgan Stanley sold TransMontaigne, a petroleum distributor, to NGL Energy Partners. Morgan Stanley has also agreed to sell an oil merchant business to Russian state-owned oil group Rosneft but that deal is near collapse because of the deterioration in US-Russia relations.
Banks face political hostility and regulatory doubts over their involvement in physical commodities. The Fed has cited the BP oil spill in the Gulf of Mexico in 2010 and other disasters as it considers new constraints on banks handling gas, oil and other bulk materials.
Exporting compressed natural gas is unusual. The new Morgan Stanley venture, called Wentworth Gas Marketing, planned to pump gas into as many as 270 containers per day and truck the containers to vessels headed abroad, according to a regulatory filing.
The US Department of Energy on October 7 authorised Wentworth to export 60bn cubic feet of gas per year to countries with which the US has a free-trade agreement, records show.
A grandfather clause in US law enables Morgan Stanley to own physical commodities assets, unlike most rivals on Wall Street.
But, as part of their supervision of Morgan Stanley, Fed officials informed the bank that the business carried risks and would face heightened scrutiny. The Fed had not sought officially to block the venture, however. Morgan Stanley and the Fed declined to comment.
The Senate permanent subcommittee on investigations, known for harsh criticism of Wall Street, also plans to hold a hearing on purported dangers of banks’ commodities operations in mid-November.
Morgan Stanley is considering selling the fledgling gas project as soon as it gets necessary approvals. Port Freeport, Texas, the planned location for the 50-acre compressor site, was scheduled to discuss and potentially agree a lease with Wentworth on Thursday, a port official said.
The new venture is an example of traders’ attempts to capitalise on cheap gas flowing from the US shale drilling boom. Power plants in Caribbean countries often burn fuel oil, which costs $12 per million British thermal units, more than triple the price of gas delivered in Texas.