Core Businesses
In order to achieve the targets in the “Challenge 2020 Vision,” Tokyo Gas has to attain sure and steady growth throughsound and bold measures for each business. Our main businesses are the gas business, electric power business andoverseas business. We once again describe these three businesses as our core businesses within the context of otherinitiatives being made to evolve into a total energy business, one of the objectives under our vision.

Gas BusinessElectric Power Business

P.21

P.27

Overseas Business

Other Initiatives

P.31

P.35

Tokyo Gas Annual Report 201520Core Businesses

1Gas BusinessStable and affordable
resource procurement through Diversification
As a nation poor in natural resources, Japan has practically zero natural
gas resources, and there are no gas supply pipelines, such as those in
North America and Europe, that are alternatives to LNG imports. For
these reasons, Japan is in a relatively weak bargaining position forsettling prices with sellers. Japan must procure LNG at higher prices
than Europe and the U.S.
Prices for LNG currently imported into Japan are generally set undera framework that is linked to the price of crude oil. If crude oil prices
rise, LNG prices also increase.
Under these circumstances, Tokyo Gas continues to engage in harshnegotiations with LNG sellers. The Company has engaged in ongoing
efforts to to stably procure natural gas at as low a price as possible.
Tokyo Gas has been advancing an LNG procurement strategy bydiversifying into three areas in order to ensure stable and affordable
resource procurement through diversification.

Prices by region
US$ / MMBtu
1812602009/3

2012/3

Europe (NBP)
Japan (all-Japan LNG)
Source: Tokyo Gas based on various materials

2015/3U.S. (Henry Hub)

1 Resource Suppliers

Diversification

We are diversifying our procurement sources, which have mainly been in Asia and Australia, to other regions of the world such as North America.

Strategic
Goal

Present

Ensure reliable procurement
and improve bargaining powerfor procurement prices
by diversifying sourcesof procurement

Primarily Asia andAustralia

Significanceof Export
Project inNorth
America

FutureAsia, Australia,
and the rest of the world

In addition to procurement fromsources in Asia and Australia, TokyoGas has been diversifying sources ofprocurement to ensure reliability ofsupply by working to import LNG
from the North America.

The price of LNG imports from the U.S. will be linked tothe Henry Hub price, the benchmark price for natural gas inthe U.S. Tokyo Gas aims for more stability in procurement
prices through portfolio effects, by procuring LNG from theU.S. at prices linked to the Henry Hub benchmark, on top ofLNG procurement contracts with suppliers in Asia andAustralia that use prices linked to the crude oil price.

21Tokyo Gas Annual Report 2015

Tokyo Gas Group’s LNG procurement by country(year ended March 31)

1,000 tons

Country

FY2012FY2013

FY2014Composition

Malaysia

4,409

4,767

5,638(40.4%)

Australia

3,379

3,992

4,179(29.9%)

Brunei

1,439962

1,003(7.2%)

Indonesia

835

614

192(1.4%)

Russia

1,682

1,813

1,812(13.0%)

Qatar

235

325

749

(5.3%)

Other734330

395(2.8%)

Total

12,712

12,804

13,967(100.0%)

Cove Point ProjectStart of imports : 2017 (20 years)
Contracted volume : 1.4 million tons/year
Seller : ST Cove Point LCC (U.S.)*
Delivery terms : All volume FOB (free on board)* Tokyo Gas Group has a 49% stake in this company.

Cameron ProjectStart of imports : 2020 (20 years)
Contracted volume : About 0.52 million tons/year
Seller : Mitsui & Co., Ltd.
Delivery terms : Ex-ship (delivered ex-ship)

Core Businesses

Diversification

2 Contract Terms and Conditions

Tokyo Gas aims to diversify contract terms and conditions, by shifting from links to crude oil prices to links to various benchmarks, such as HenryHub, as well as by shifting from forwarding with destination clauses to forwarding without destination clauses.

StrategicGoal

Present

Stabilize procurement prices through portfolio effects, such as by diversifying pricebenchmarks and using a combination of contract period lengths●Primarily crude oil price linked ●Mostly long term
●Forwarding with designation clauses

DiversificationFuture●Crude oil price linked ●Henry Hub-linked●NBP-linked ●Combination of differing periods●Free shipment destinations

3 Our Global LNG network

Tokyo Gas aims to own interests in gas fields and electric power stations around the world. We aim to eliminate price differences among regions
by building distribution channels that bridge Asia, North America and Europe.

StrategicGoalPresentNarrow regional price differences and build a global LNG network●Transactions between exporting nations and Japan

Future●Global network of gas fields and electric power plants

Deploy own ships
The Tokyo Gas Group aims toreduce resource prices by
diversifying and expanding
sources of procurement throughthe possession and management of its own LNG carriers.

Vessels owned
and managed by
the company

Name

Capacity

TypeBuilt

LNG project

LNG Vesta
Energy Frontier
Energy Advance
Energy Progress
Energy Navigator
Energy Confidence
Energy Horizon
New Vessel (1)New Vessel (2)New Vessel (3)New Vessel (4)127,000m3
147,000m3
147,000m3
147,000m3
147,000m3
155,000m3
177,000m3

Moss
Moss
MossMossMossMossMoss

1994/6
2003/92005/3
2006/11
2008/6
2009/5
2011/9

Expand North West
Shelf (NWS)
MalaysiaⅠ,Ⅲ
DarwinSakhalinⅡ
Pluto
Gorgon, Others

165,000m³

SPB

2017

Cove Point, Others

165,000m3

SPB
MossMembrane2018
1993/3Vessels charteredLNG Flora

127,000m3

to third party

GDF SUEZ NEPTUNE

145,000m³(Regasification Vessels)

GDF SUEZ CAPE ANN

145,000m3

Membrane(Regasification Vessels)

2009/112010/6

Tokyo Gas Annual Report 2015221 Gas BusinessCore Businesses

Expansion of Natural Gas Usage throughInfrastructure Development
Under the “Challenge 2020 Vision,” Tokyo Gas plans to invest
around ¥730 billion, equivalent to 35% of its total investment
budget, in infrastructure upgrades over the nine-year period
from fiscal 2012 to fiscal 2020. Our strategic focus is on thenorthern Kanto region, where there is strong potential demand
for gas with a number of large-scale industrial zones.

Potential of Growing to 9.0 Billion m3
Kanto region (100~200-kilometer radius)

General Industrial Gas
Sales Volumes

2.0 billion m3

3.4billion
m3

FY2011

Tokyo Gas aims to expand gas sales volumes to 22.0 billion
cubic meters (including tolling gas usage and LNG sales) by
fiscal 2020, by further enhancing the stability of supply throughexpanded supply capacity for the development of potential
demand and the completion of its pipeline loops, as well as byfacilitating the transition from heavy oil and kerosene as fuel tonatural gas and promoting the advanced use of natural gas. In
particular, Tokyo Gas aims to double the volume of gas usedby general industry, from 3.4 billion cubic meters in fiscal 2011
to 7.0 billion cubic meters.

Kanto region (100-kilometer radius)

7.0 billion m3

7.0billionm3

FY2020Total

9.0 billion m3

Northern Kanto Containing Significant Latent Demand
Hitachi–Onahama Line(provisional name)

Ibaraki–Tochigi Line

North Kanto
Industrial Zone

（2016.3）
Hitachi LNG Terminal(under construction /operations scheduled tocommence in March 2016)

Koga–Moka Line（2018.3）

Ibaraki Line

Kashima
Waterfront
IndustrialZone

Saito Line
（2015.10）

Kashima Waterfront
Line

Chiba–Kashima Line

Tokyo–Yokohama
Industrial Zone

Ohgishima LNGTerminal

High-pressure lines (existing)High-pressure lines (construction commenced after“Challenge 2020 Vision” launch)
High-pressure lines (under construction /information in parentheses is the date operations arescheduled to commence)
High-pressure lines(under consideration / route selection progress)
High-pressure lines (medium-to-long-term concept)
Other companies’ pipelines (existing)Tokyo Gas Group supply area
Industrial zones
Factories

Tokyo–Chiba
Industrial Zone
Sodegaura LNG
Terminal

100km

Negishi LNG
Terminal

Gas Sales Volumes (“Challenge 2020 Vision” forecasts)

Gas Sales Volumes in the Kashima Waterfront Industrial Zone

Billion m3

Million m3

25152,000

22.0

2015.8

16.7

17.2

18.3

1,794

1,500
1,000

10500

5765
40500201123

Near the Tokyo metropolitan area, northern
Kanto, centered on Tochigi Prefecture andIbaraki Prefecture, is a region with strong
potential demand for natural gas with a numberof large-scale industrial zones.
As a first step toward capturing latentdemand through the development ofinfrastructure, we completed theChiba-Kashima Line in March 2012. Gas sales
volumes increased dramatically in the Kashima
Waterfront Industrial Zone.
Tokyo Gas plans to enhance the stability ofsupply by completing its pipeline network. We
are working to spread natural gas usage bydeveloping new customers in northern Kanto.

2012

Tokyo Gas Annual Report 2015

2013

2014

2020
（Plan）FY2012

2013

2014

FY

Core Businesses

Cultivating Demand Based Out of the Hitachi LNG Terminal
The Hitachi LNG Terminal began construction in July 2012 as a strategic production and supply base for the company’s expanding service area
and to penetrate markets further. The Ibaraki–Tochigi Line will connect existing pipelines in Moka City, Tochigi Prefecture to the Hitachi LNG
Terminal. We plan for the Hitachi LNG Terminal to be fully operational in March 2016. Here, we introduce the comments of project managers
working on the construction site for the new terminal.

Developing New Customers withCompany’s First LNG Terminal for
Large-Lot Customers
A New Energy Hub for theNorthern Kanto Area

Hitachi Project GroupManager Tohru Komatsubara

Tokyo Gas has expanded gas production facilities in tandemwith growth in demand for natural gas. However, the maximum
receiving capacity at our three LNG terminals around the Tokyo
Bay is approximately 18.0 billion cubic meters. New terminals
need to be constructed to meet future demand for natural gas.
Since a large number of ships pass through Tokyo Bay andfrom a security standpoint, we decided to build our first
offshore receiving terminal located outside Tokyo Bay.
When choosing a construction site, it is important to be on
good terms with local residents. Hitachi City is located innorthern Kanto, where we think there is potential demand, andour Hitachi Branch Office has built relationships of trust withgovernment officials over 70 years. Taking into consideration
the distance for laying the trunk line and other factors, wedecided to build our new terminal in the Hitachi port area. We
have worked very hard with representatives of Ibaraki
Prefecture and Hitachi City to gain the understanding of local
residents and to change port harbor plans.
The most important aspect of construction is the sharing of
our concept of the terminal, which is to create a new energy
hub for the northern Kanto region with our first LNG terminal
for developing new large-lot customers. The most ambitious
aspect of the new terminal is its aim to unearth new demand
for gas. In the northern Kanto region, the deregulated sector
for large-lot customers is the main battleground in thecompetition over energy. Tokyo Gas must reduce the cost ofproduction as much as possible without sacrificing safety andreliability. Construction of the new terminal requires a variety oftechnologies, from civil engineering and machinery to electricalfacilities and fixtures. When pursuing optimal configurations invarious parts of construction, the tendency is to over-engineer.

By sharing the concept of the new terminal with everyone
involved in the project, we take care to maximize use of theLNG terminal construction and operating know-how nurtured
over four decades and make sure everyone’s eyes are on thesame goals.
The terminal site is approximately 10 hectares in size, smaller
than our other three terminals, so construction work efficiency
has suffered. Being an offshore project, sea conditions can also
slow construction down and pose many challenges for theproject. Leveraging our long years of accumulated LNG terminal
construction know-how, we have successfully cut costs
through the modularization* of pier facilities and substantiallyreduced construction time for storage tanks. After experiencing
the Great East Japan Earthquake, Tokyo Gas has reassessedbuilding specifications for stronger resistance against
earthquakes larger than the Great Hanshin-Awaji Earthquake,while making preparations to prevent cyberattacks against ITsystems.
The Hitachi LNG Terminal is a strategic base for developing
new customers in northern Kanto, and it will also enhanceenergy security in the Kanto region by connecting together ournetworks of trunk lines while also making it possible to supply
high-pressure gas (7MPa) from the northern area. Kobe Steel’s
decision to build its Moka power plant near our facilities is proof
that our strategy to develop new customers in northern Kanto isworking. I believe the new terminal is helping to establish theTokyo Gas brand in the northern Kanto area as we strive tocooperate with local residents through contributions to local
communities and stable operations.
*Modularization: Pipes and other assembly work is performed at otherplant locations in order to reduce work volume on sites with limited area.
Only installation work is performed on-site.

Tokyo Gas Annual Report 201524

Core Businesses

1 Gas BusinessProviding Diverse Energy Solutions
Stably Supplying Energy
Under the “Challenge 2020 Vision,” ¥600.0 billion, or 29% of total capital expenditures, investments, and financing, will be directed toward
cultivating energy demand over the period from fiscal 2012 to fiscal 2020. By providing various energy solutions centered on natural gas, we aim
to diversify the range of fields in which natural gas is used and thereby enhance the LNG value chain.

Fuel Conversion
The Benefits of Converting to Natural Gas
If we identify coal as the base rate of 100, the level of CO2 emissions
produced by natural gas during combustion comes in at 60. In thisregard, natural gas offers outstanding eco-friendly properties.
Coupled with efforts to increase the efficiency of burners, successful
steps can be taken to further reduce the amount of CO2 emissions.
Unlike heavy fuel oil, which requires various storage facilities
including tanks, gas is delivered through a network of pipes. ThisThe Benefitsof FuelConversion○Eco-friendly (helps to reduce
CO2 emissions)○Eliminates the need for storage
equipment and facilities○Offers improved operability○Delivers labor savings○Ensures high supply stability

helps to minimize management costs. Moreover, natural gas
generates low levels of soot during combustion, making it easier toclean the equipment used compared with other fuels.
Natural gas also offers benefits from a BCP perspective. Tokyo Gas
uses medium- and high-pressure pipelines that are laid underground.
These pipelines provide exceptional strength and flexibility allowing
the Company to ensure the stable supply of natural gas even whenearthquakes cut off traffic along roadways.
Comparison of Emissions (Coal=100)
Natural gasOilCoalSOx

070100NOx4070100

CO26080100

Promoting the Widespread Use and Expansion of Distributed Energy Systems
Commercial and Industrial Cogeneration Systems
Against the backdrop of increased demand for energy security andbusiness continuity plans, we have been promoting sales of commercialand industrial cogeneration systems, and our cumulative stock of thesesystems has reached 1,790 MW. We plan to raise this cumulative stock
to 4,000 MW in fiscal 2020.
Cogeneration systems supply electricity and heat through engines
and other sources of power. In addition to the installation of facilities atthe point of demand, cogeneration systems help to enhance energy
efficiency, reduce the amount of CO2 emissions, and improve economic
efficiency through the conservation of energy by effectively utilizing bothelectricity and waste heat. The introduction of cogeneration systems
continues to advance from a BCP perspective. This reflects the ability ofthese systems to provide stable supplies of electricity and heat asconcurrent disaster prevention facilities at the time of commercial power
network blackout if certain conditions are met.

Benefits ofCogeneration
Systems○Reduced Energy Usageand Costs○Reduced environmental impact○Improved Energy Security

Cogeneration System (Commercial, Industrial) Stock Plan
MW

4,000

4,000
3,000
2,000

1,790

1,530

1,0000
2011

2014

2020
(Plan)FY

Cogeneration Systems

Electrical energy
30％～48％

Pipeline
Gas
LNG
Terminal

Cogeneration

Waste heat that isdifficult to use
15～30％Heat energy (steam)
30％～55％
Total energy efficiency

70％～85％ ** The aforementioned energy efficiency is calculated based on certain assumptions made by the Company.

25Tokyo Gas Annual Report 2015

Core Businesses“ENE-FARM”
The “ENE-FARM” residential fuel cell system is a type of distributed
energy system that is installed onsite at customers’ homes. Thishighly efficient system uses city gas to generate electricity while alsoutilizing the heat created through the generation process to heatwater. Moreover, “ENE-FARM” is an important strategic product inresidential gas sales as customers using this system also consume

greater volumes of city gas.
“ENE-FARM” has continued to evolve since the first unit waslaunched in 2009. In April 2015, our “ENE-FARM” stock had risen toapproximately 43,000 units.
The “Challenge 2020 Vision” calls for a stock of 300,000 “ENE-FARM”
units to be accumulated by fiscal 2020, and we will continue to refine
these systems and promote sales with the aim of achieving this goal.

“ENE-FARM” (Residential) Stock Plan

Advances to Date

Thousands units

400May 2009First unit soldApr. 2011

New “ENE-FARM” model launched, priced approximately¥700,000 less than previous offerings (MSRP: ¥2,630,000 plus tax)

300300

Apr. 2013200(MSRP: ¥1,900,000 plus tax)

100
0New, more affordable “ENE-FARM” model launched

9.6

17.2

29.4

2011

2012

2013

43.4
2014

2020
(Plan)

Apr. 2014

New “ENE-FARM” system for housing complexes launched

Apr. 2015

New product developed for detached house use; sales at arecord low price (MSRP: ¥1,600,000 plus tax)

FY

Supplying LNG throughout Japan
Not limiting its operations to the Kanto region, the resources procured
by Tokyo Gas are provided throughout Japan. We thereby meet theneeds of gas companies throughout the country, supplying them withLNG via tank lorries, large ocean-going tankers, and smaller domesticvessels. The expansion of our sales channels in this manner is yet
another one of our efforts to enhance the LNG value chain.
As one facet of these efforts, we commenced supply to the Ishikari
LNG Terminal of Hokkaido Gas Co., Ltd., in October 2012. This projectis our first endeavor to provide a domestic gas company with gas
procured by the Company via ocean-going tankers. Through thisventure, the Ishikari LNG Terminal will be supplied with between
300,000 tons and 400,000 tons of LNG per year during the 11-year
period beginning fiscal 2012. Further, we acquired a 20% stake in
Hokkaido LNG Co., Ltd., a consolidated subsidiary of Hokkaido Gas
that is the direct owner of the Ishikari LNG Terminal, to deepen ourrelationship as we work to advance the spread of LNG. We also signed
an LNG sales agreement with Saibu Gas Co., Ltd., for the supply of
about 300,000 tons of LNG per year over the 16-year period beginningfiscal 2014. and commenced supplying them from October 2014.

Supplying LNG via Overseas Ocean-Going Tankers

LNG liquid sales volumes

Thousand t
1,500

Ishikari LNG Terminal
Hokkaido Gas Co., Ltd.
Hibiki LNG Terminal
Saibu Gas Co., Ltd.

1,237

1,200920900784600

508545604300020102011

2012

2013

2014

2015
Forecast

FYTokyo Gas Annual Report 201526