Oct 20 (Reuters) - A novel U.S. natural gas venture launched by former Morgan Stanley trading executives has secured its first major deal, allowing it to capitalize on seasonal supply shortages in pockets of the Northeast.
A large oil and gas company has agreed to buy as much as 90 billion cubic feet of compressed natural gas over five years, the new company, Pentagon Energy, said in a statement. The gas will be shipped by truck from a CNG station in the heart of the Marcellus shale gas field to power plants across the Northeast. Pentagon declined to name the buyer of the gas.
The project, involving the nation’s largest gas compressing station and specially designed trucks for hauling it up to hundreds of miles, is meant to capitalize on the abrupt supply shortages and price spikes that can arise in the region due to a lack of pipeline capacity to meet peak winter demand.
Pentagon plans to build several more so-called mother stations that will provide CNG to locations that “experience gas shortages or lack the infrastructure to receive gas.”
Coral Gables, Florida-based Pentagon was formed earlier this year from the acquisition of Wentworth, Morgan Stanley’s compressed natural gas business. The bank came under pressure from regulators to exit its physical commodities businesses, including Wentworth. Morgan Stanley also sold its physical oil business to Castleton Commodities International in May.
Alberto Chiesara, who was an executive director in Morgan Stanley’s commodities group, and Ryan Comeford, who was a managing director, left the bank to join Pentagon following the Wentworth sale.
The Marcellus CNG facility will be able to compress up to 2.5 billion cubic feet per month, equivalent to about 1.5 percent of peak power plant gas demand in the Northeast.
Natural gas production in the United States, and in particular the Marcellus shale in the Northeast, has swelled in recent years as hydraulic fracturing opens up decades’ worth of resources.
But some consumers in the region are still unable to take advantage due to a lack of pipeline infrastructure, which is expanding relatively slowly because of regulatory hurdles of building new lines in densely populated areas.
As a result, natural gas prices in some areas can spike abruptly during the winter as supplies run short, sometimes forcing power plants to switch to costlier fuels or import more expensive liquefied natural gas from abroad.
Reporting by Olivia Oran in New York; Editing by Matthew Lewis