Toshiba intends to offload $7B US gas commitment

Amidst a major accounting scandal, Japanese electronics major Toshiba is in the process of offloading its $7.4 billion (GBP4.87billion) commitment on US liquefied natural gas (LNG) imports.

Toshiba has decided to trim the 20-year contract as minimum as possible. Other Asian importers have started reducing their long-term commitments on LNG imports.

The total liquefaction charges to be paid by Toshiba to Freeport in Texas will be $7.4 billion over 20 years.

In 2013, Toshiba took a decision to purchase the right to liquefy 2.2 million tons of LNG every year from 2019 from Freeport LNG export plant in Texas.

Toshiba's objective behind this commitment was to use LNG supplies as a sweetener to potential Asian buyers for its electricity turbines used in combined cycle gas-fired power plants.

 Toshiba is a Japanese electronics conglomerate engaged in manufacturing everything from computers to vacuum cleaners. Toshiba signed the deal two years ago to sweeten sales of turbines for power plants. 

Generally, a drop in Asian gas prices will push brighter chances for US exports. But this couldn't take place as Toshiba is exposed to LNG processing fees of $370 million per annum.

The tolling commitment with Freeport in Texas requires the Japanese firm to pay liquefaction plant fees if it doesn't use the facility for producing LNG. This is also costing Toshiba as the total liquefaction charges amounting to $7.4 billion over 20 years.

Toshiba held a series of meetings with oil and gas companies, trading houses, potential LNG buyers on offloading the long-term commitments. The Japanese major is planning to offload the long-term commitment among several players as it is difficult to find a single potential buyer for the deal.

Akira Nakatani, a manager at Toshiba's LNG group, said: "We have to admit the competitiveness of (US) LNG is getting weaker compared to JCC prices," while referring to the typical price mechanism for long-term supplies to Japan.

The long-term tolling agreement of Toshiba surprised the market analysts. Tom O'Sullivan, an independent energy consultant and former investment banker, said: "It was like Sony buying LNG."

Toshiba intends to sell its right for liquefied gas on short-term or spot basis. The Japanese electronics major is in a hurry to offload as much as possible in the early phase of the plan.

Toshiba is planning to sign any contract to supply turbines as it also explores several ways to cut down the 20-year contract.

However, the Japanese firm declined to provide further details on the cost factor. Other Asian buyers are also in the process of decreasing their exposure to long-term LONG import commitments.

 Toshiba's energy and infrastructure division takes care of turbines business and this contributed $17 billion to net sales in 2014.