Japan’s Toshiba Corp. will exit its U.S. LNG business by paying China’s ENNEcological Holdings Co. more than $800 million to take over the unit as part of a plan to shed money-losing assets.
The sale is the disappointing culmination of a venture that puzzled analysts when it was announced in 2013. Asian LNG prices have plunged 42% in the past five years and the potential for future losses spurred Toshiba’s exit.
Under the deal, Toshiba will sell its Toshiba America LNG Corp. unit to ENN Ecological, a unit of ENN Group, for $15 million, the Japanese company said in a statement on Nov. 8.
However, once that sale is complete, Toshiba will then make a one-off payment of $821 million to ENN to pass on its roughly $7 billion commitment, starting in 2020, to purchase 2.2 million tonnes per year of LNG over 20 years from Freeport LNG in Texas.
“The project posed a huge risk, because no one knows how the situation will be over the next 20 years,” Toshiba’s CEO Nobuaki Kurumatani told reporters at a press conference.
The company booked a charge of 93 billion yen (US$818 million) for exiting the LNG business in its earnings it announced on Nov. 8.
“The deal is our second major step to expand in the overseas upstream business. We expect to get 2.2 million tonnes of relatively low-cost LNG starting in 2020 to meet growing domestic demand,” Clarissa Zhang, public relations director of ENN Ecological, said.
Toshiba has spent years trying to either sell the gas to power customers or offload the business.
Toshiba’s annual cost of its deal with Freeport was a bit over $360 million dollars, 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 U.S. 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 U.S. 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,” Junzo Tamamizu, managing partner of Clavis Energy Partners in Tokyo, said.
Recommended Reading
Venture Global Gets FERC Nod to Process Gas for LNG
2024-04-23 - Venture Global’s massive export terminal will change natural gas flows across the Gulf of Mexico but its Plaquemines LNG export terminal may still be years away from delivering LNG to long-term customers.
Watson: Implications of LNG Pause
2024-03-07 - Critical questions remain for LNG on the heels of the Biden administration's pause on LNG export permits to non-Free Trade Agreement countries.
US Asks Venture Global LNG to Justify Filing of Confidential Documents
2024-03-13 - The FERC request comes days after Venture Global LNG customers had challenged the company's request for a one-year extension of its startup and urged the regulator to make Venture Global release the confidential commissioning documents.
Despite LNG Permitting Risks, Cheniere Expansions Continue
2024-02-28 - U.S.-based Cheniere Energy expects the U.S. market, which exported 86 million tonnes per annum (mtpa) of LNG in 2023, will be the first to surpass the 200 mtpa mark—even taking into account a recent pause on approvals related to new U.S. LNG projects.
Venture Global Seeks FERC Actions on LNG Projects with Sense of Urgency
2024-02-21 - Venture Global files requests with the Federal Energy Regulatory Commission for Calcasieu Pass 1 and 2 before a potential vacancy on the commission brings approvals to a standstill.