Photographer: Akio Kon/Bloomberg

With Billions at Stake, Toshiba Seeks Buyers for American Gas

  • Japan’s Jera is helping Toshiba find buyers for its U.S. LNG
  • Toshiba flagged potential $8.5 billion power unit loss in June

Toshiba Corp., already reeling from a crisis at its nuclear business that sent its market value down by almost half, is seeking help from one of the world’s biggest buyers of LNG to avoid billions of dollars in potential losses if it can’t sell American gas.

Toshiba is working with Japan’s Jera Co. to help it find buyers for gas it has a contract to liquefy in the U.S. starting in 2019, Hirokazu Tsukimoto, a spokesman for the company, said by phone. Since Toshiba hasn’t yet secured long-term contracts, it may be forced to sell the LNG in spot markets at a loss, or opt not to process gas at Freeport LNG Development LP’s plant in Texas, Tsukimoto said. Either way, it pays a fixed tolling fee.

The potential for unsold gas is another blow to Toshiba, which is already facing billions of dollars in losses at its nuclear business following a profit-padding scandal in 2015. The Japanese conglomerate said in a June filing it could face potential losses of 971.4 billion yen ($8.5 billion) at its power and infrastructure division, which the spokesman said is mostly due to its LNG contract in the U.S.

“Finding new buyers is difficult in the current market structure,” Junzo Tamamizu, managing partner at Clavis Energy Partners LLC in Tokyo, said by phone. “Toshiba could optimize its LNG sales by swapping cargoes and accessing various markets.”

Toshiba shares added 1.8 percent to close at 246.7 yen in Tokyo trading, after earlier falling as much as 7.1 percent.

When Toshiba struck the LNG deal with Freeport in September 2013, the outlook for profit seemed bigger. Gas sold in Asia was at a larger premium to U.S. prices back then, making potential future American shipments more attractive. A global gas glut has narrowed the price spread between the U.S. and Asia by more than half since Toshiba agreed to buy the right to liquefy 2.2 million tons a year of LNG for 20 years from the Freeport project.

Toshiba has conditional agreements with multiple buyers to sell more than half of its output from the Freeport project, but none of them are legally binding, according to Tsukimoto. The company hopes to finalize its first deal “as soon as possible,” he said.

Buyers of U.S. LNG, including Jera and Gail India Ltd., are seeking to resell or swap the fuel amid narrower profit margins. Jera signed a flexible contract to resell up to six LNG cargoes a year to the U.K.’s Centrica Plc last month and Tokyo Gas Co., Japan’s second-biggest LNG buyer, is in talks with European firms to swap the super-cooled gas it exports from the U.S.

Jera, a joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co., is helping Toshiba market LNG from the Freeport project, said spokesman Atsuo Sawaki. Jera has a separate contract to buy the fuel from another facility at the Freeport plant starting in 2018 and the two Japanese companies could further cooperate in their LNG operations, he said.

Fixed Fees

Under LNG tolling agreements like the one Toshiba signed with Freeport, buyers typically pay fixed fees for the ability to liquefy natural gas, regardless of the amount they export. The charge can range from $2.25 to $3.50 per million British thermal units, according to a November report published by Columbia University’s Center on Global Energy Policy.

Toshiba’s fixed tolling fees over 20 years could be as much as $8.2 billion, according to calculations by Bloomberg, based on the Columbia University figures. Toshiba’s Tsukimoto declined to disclose the company’s Freeport tolling charge.

‘Bloody Disaster’

“It’s a bloody disaster,” said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc. “It’s another source of additional losses which the market had not been anticipating. The known unknown had been in the nuclear related losses.”

Last month, Toshiba surprised investors with the disclosure that a U.S. nuclear construction unit may result in billions of dollars in losses. Kyodo news reported the loss may reach 700 billion yen. The unexpected writedown follows a profit-padding scandal in 2015 that led to record losses and prompted the company to cut staff and sell off businesses.

Toshiba has said it’s considering raising funds by spinning off its memory chip unit. Private equity firms Bain Capital LP and Permira may be interested in purchasing a stake, which could be as much as 30 percent, Kyodo News reported, citing people it didn’t identify. Flash memory for smartphones and solid state disk drives is one of the few bright spots in Toshiba’s sprawling business portfolio, accounting for more than half of total operating profit in the first half of the fiscal year.

Toshiba is in talks with its auditor on the appropriate way to provision for the potential loss on its Freeport LNG, such as booking it incrementally over the 20-year lifetime of the fuel contract, according to Tsukimoto.

— With assistance by Stephen Stapczynski, Pavel Alpeyev, Emi Urabe, and Dan Murtaugh

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