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Toshiba liable for billions in gas contract

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Reuters are reporting that Japan's Toshiba, attempting to fill the balance sheet hole left by a US$6.3 billion hit to its nuclear operations, must also pay billions of dollars for a US natural gas contract.

The company surprised many in 2013 when it announced plans to buy 2.2 million t of LNG annually from Freeport LNG in Texas, exposing it to more than US$7 billion in charges over a 20 year period.

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 US$370 million per year for the life of the contract.

The company has an agreement with Japan's Jera to help sales and marketing of the fuel from 2019, when the contract with Freeport goes into effect.

Toshiba signed the deal at the height of Japan's energy crisis, forcing Japan to spend huge sums on imported fossil fuels at a time when prices for oil, gas and coal were high.

Japan's government promoted these gas supply agreements from the US’ shale gas production as a solution to its energy problems.

Toshiba's deal seemed like a good bet at the time as Asian LNG prices LNG-AS 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.

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