Toshiba coughs up to get LNG plant off its hands
Japan s Toshiba has said it will pay more than $800m to an unidentified overseas “buyer” to exit its US liquefied natural gas (LNG) business as part of a plan to shed money-losing assets.
The sale is the disappointing culmination of a venture that puzzled analysts in 2013. Asian LNG prices have plunged 42% in the past five years. The potential for future losses spurred Toshiba’s exit, the company said.
Under the deal Toshiba will transfer to the unidentified buyer its Toshiba America LNG unit and $7bn commitment starting in 2020 to purchase 2.2-million tons per year of the fuel over 20 years from Freeport LNG in Texas. Toshiba will pay the buyer a one-off of $821m, or about ¥93bn, the company said.
The company booked a charge of ¥93bn for exiting the LNG business in its earnings it announced on Thursday.
The Nikkei business daily reported on Thursday, without citing a source for the information, that the buyer is a unit of Chinese gas company ENN.
However, Toshiba said that it will only identify the buyer when the final sales contract is signed. An ENN Group spokesperson said he was not aware of the deal when contacted by Reuters.
The company has spent years trying to either sell the gas to power customers or offload the business the contract.
Toshiba’s annual cost of its deal with Freeport was a bit over $360m, meaning the company is paying about two years of those costs to ENN to take the obligations, said Nicholas Browne, director of Asia-Pacific gas and LNG at Wood Mackenzie.
“For ENN this represents a relatively low cost and immediate way to source significant US volumes,” Browne said.
“For Toshiba it clearly ends their short foray in the LNG business.
“ENN has been very open that it plans to set up an LNG trading business. As such, these volumes will contribute to their portfolio and some will not end up in China.”
Still, the deal is a “positive sign for US LNG developers that China is still open for business,” amid a trade war between the world’s two biggest economies.
Toshiba stunned the market in 2013 when it decided to enter the LNG business. With no experience in shipping or the logistics of the gas and LNG business it seemed an odd fit, analysts said at the time.
Toshiba’s plan was to pitch LNG supplies as a sweetener to likely Asian buyers of its turbines used in combined cycle gas-fired power plants.
“The company probably wanted to add value to its power plant business by selling not only the power plants but also fuel. But for plant builders, it’s always better to do it all via tenders,” said Junzo Tamamizu, managing partner of Clavis Energy Partners in Tokyo.