Japan’s Toshiba, scrambling to fill the balance sheet hole left by a $6.3 billion hit to its nuclear operations, is also on the hook to pay billions of dollars for a U.S. natural gas contract.
The computer chips-to-nuclear conglomerate surprised many in 2013 when it announced plans to buy 2.2 million tons of liquefied natural gas (LNG) annually from Freeport LNG in Texas, exposing it to more than $7 billion in charges over a 20 year period.
The company still has no firm commitments to sell the gas, a Toshiba spokesman said on Friday.
Toshiba’s contract requires it to either procure natural gas to liquefy in Freeport’s facility and resell as LNG or pay a fixed gas processing fee to Freeport of about $370 million per year for the life of the contract.
The Toshiba spokesman said the company had an agreement with Japan’s Jera, the world’s biggest single buyer of LNG, to help sales and marketing of the fuel from 2019, when the contract with Freeport goes into effect.
A Jera spokesman said there have been no discussions about buying the Toshiba gas supplies.
Toshiba (TOSBF) signed the deal at the height of Japan’s energy crisis after the 2011 Fukushima nuclear disaster led to the shutdown of all the country’s power reactors, forcing Japan to spend huge sums on imported fossil fuels at a time when prices for oil, gas and coal were high.
Still, many question why Toshiba was making a foray into the world of big gas trading.
“Signing up for the gas is another example of Toshiba’s poor management oversight,” said Tom O’Sullivan, an energy consultant and former investment banker with many years experience in Japan.
“It is also an example of a conglomerate strategy unique to Japan, where many of these corporations pursue so many different lines of business,” he said.
Japan’s government promoted these gas supply agreements from the United States’ shale gas production as a panacea for its energy problems.
Toshiba’s deal seemed like a good bet at the time as Asian LNG prices surged to a record. Now, however, they are two-thirds below their 2014 peak, half of what they were when Toshiba signed the deal, amid a flood of new production.
By 2015, Toshiba was trying to sell its LNG commitment rather than use it as a sweetener for gas turbine sales, as reported by Reuters.
Shares in Toshiba sank a further 9.2% on Friday, after credit ratings firm S&P Global said it might slash Toshiba’s rating several notches.