GROWTH THROUGH THE CREATION OF SHARED VALUE

SPECIAL FEATURE 1:
INTERVIEW WITH THE PRESIDENT
As a provider of energy in the Tokyo metropolitan area, today more than ever Tokyo Gas isrequired to do all it possibly can to ensure thestable supply of energy. The Tokyo Gas Group
strives to increase shareholder value by fulfilling its social mandate, which is to spread andexpand the use of natural gas.

:1

The Great East Japan Earthquake has turned the spotlight on Japan’s energy security. Do you think Tokyo
Gas needs to be better prepared for earthquakes?

Existing Infrastructure Displayed Excellent

Tsunami and Power Outage Planning

Earthquake ResistanceIn response to the recent tsunami that devastatedTokyo Gas has measures in place that cover the threeareas in the Tohoku region, we have specified astages of “prevention,” “emergency,” and “recov-

height for coastal revetments at LNG terminals.

ery” in the event of a major earthquake. The three

This height is based on the assumed height of a

LNG terminals and the trunk pipelines around Tokyotsunami that would result when a record magni-

Bay were designed to withstand earthquakes of thetude epicentral earthquake occurs, or when linked

size of the Great Hanshin-Awaji Earthquake (M7.3) inearthquakes occur in the Tokai, East Nankai, and1995 and the Great Kanto Earthquake (M7.9) in 1923.

Nankai regions. In addition to re-examining existing

They stood up well in the March 2011 earthquake, asassumptions, we will keep a close watch on theevidenced by the minimal amount of damage sus-

Central Disaster Management Council and academ-

tained by our production and supply facilities. In the

ic conferences where discussions on earthquake-

Tohoku region too, which is near the epicenter of theresistant design standards and tsunami theories

M9.0 earthquake—the largest ever recorded intake place, and will determine the need for addi-

Japan—our LNG tanks and high-pressure pipelines

tional measures accordingly.

survived virtually intact, even though the tsunami
damaged electrical equipment at an LNG terminal.

As for power outage planning, our systems allow
for back-up production and supply using the two

In addition, we have an earthquake damage pre-remaining terminals, enabling us to meet virtually all

vention system called “SUPREME” (Super-dense

demand when electricity supply to one terminal isReal-time Monitoring of Earthquakes), which auto-

stopped. In the unlikely event of a simultaneousmatically shuts off the gas supply when it detects a

power outage at all three terminals, we can continue

quake with a magnitude over a certain level. On

supplying a certain quantity of gas using emergency

March 11, the system worked properly, which meant

power generators. Going forward, we will evaluatethat we were able to prevent secondary damage

the risk of a total power outage while taking into

caused by fire.

account demand estimates for such an event.

TOKYO GAS ANNUAL REPORT 2011

Q

7

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:2

Given changing business conditions following the greatearthquake, has Tokyo Gas altered its sales strategy, which
focuses on combating the push to all-electric houses?

No Change in Basic Strategy

of achieving the best mix of energy sources will

The operating environment has seen various changes

become increasingly important. This entails meet-since the earthquake, including a sharp rise in demanding the demand for energy through the proliferation

for gas for thermal power plants, a shift from large-of dispersed energy systems that use a variety of

scale system-based power systems to dispersed

energy sources, including natural gas and renew-

energy systems, and review and reassessment ofable energy. Tokyo Gas will also play its part by pro-the shift to all-electric houses. Nonetheless, it is pre-moting energy diversification centering on natural

cisely at a time like this that we need to “develop

gas, which combines renewable energy and cogen-the integrated energy business,” with natural gas at

eration with a shift to natural gas and the advanced

its core, which is being promoted by the Group.

use of natural gas.

Therefore, we will continue efforts to spread andexpand the use of natural gas by highlighting theadvantages of natural gas over other energy forms
such as environmental friendliness, stable supply,and convenience.

Gas Sales Volume and Number of Customers(Years ended March 31)
20.0

Billion m 3

Millions

12.00

16.4

Centering on Natural Gas

11.20

TOKYO GAS ANNUAL REPORT 2011

10.74

10.0

11.00

10.51

In June 2010, the Japanese Cabinet approved the

8

14.7

13.9

Greater Focus on Energy Diversification,

government’s Basic Energy Plan, which is based on
the spread and expansion of nuclear power. We at
Tokyo Gas recognize that a review of this Plan is

0.0

10.00

09

10

11

Amid this environment, and from the perspectives of security and stable supply as well, the goal

13

14

Estimates

inevitable and that there will be discussions on a newenergy strategy in the near future.

12

Gas sales volume (left)
Residential
Commercial and others
Industrial
Wholesale

Number of customers (right)

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Emphasizing the High Added Value of Natural Gas

April 2011, we released a new model of the “ENE-

In order to increase the adoption of dispersed energy

FARM” system, which is about half the size of its

systems by households, Tokyo Gas is working topredecessor, is easier to install, and costs consider-spread and expand the use of its “ENE-FARM” resi-

ably less. By making further cost reductions, we plan

dential-use cogeneration system. In Japan, theto generate momentum for increased use of “ENE-

number of members per household is expected to

FARM.” Going forward, we will also promote the use

decrease, and the diffusion of energy-efficient appli-of renewable energy, including double power gener-

ances is expected to increase. “ENE-FARM,” whichation, which combines “ENE-FARM” fuel cell andsupplies electricity as well as hot water, not only

solar power generation, and “SOLAMO,” a gas hotenhances the added value of natural gas, but also

water system that also uses solar heat. By enhancing

contributes to a low-carbon society through its ener-

the added value of natural gas in these ways, we willgy efficiency and low carbon dioxide emissions. In

work to increase demand for residential systems.

“ENE-FARM” Sales (Annual Basis) (units)(Non-consolidated)(Years ended March 31)

Number of Installed “ENE-FARM” (units)(Non-consolidated)(Years ended March 31)
50,00042,00040,000

Newly built houses
Existing houses

30,000

Total

Estimate

2010

2011

2012

700

1,200

2,500

800

1,200

2,500

1,500

2,400

5,000

20,00010,000

4,000

0

11

12

13

14

New “ENE-FARM” product launch(left: Fumio Ohtsubo, President of Panasonic Corporation;right: Tsuyoshi Okamoto, President of Tokyo Gas Co., Ltd.)“SOLAMO” gas hot water system that also uses solar heat

TOKYO GAS ANNUAL REPORT 2011

Estimates

9

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Sakhalin

Tokyo

Qatar

Malaysia
Indonesia

Brunei

Pluto
GorgonDarwinNWS

Existing LNG project

Tokyo Gas Long-Term LNG Contracts

Queensland Curtis

New LNG project
New LNG project (participation decided)

TOKYO GAS ANNUAL REPORT 2011

Q

10

:3

The Great East Japan Earthquake has led to a sharp
increase in domestic LNG demand. How do you viewthe demand-supply situation for LNG, and what measures are you taking to ensure stable LNG procurement?

LNG Demand-Supply Balance Anticipated

we are focusing on how to diversify LNG procure-in the Long Term

ment. We are targeting stable, competitive LNG

The damage incurred to Tokyo Electric Powerprocurement by diversifying the methods of pro-Company’s Fukushima Daiichi Nuclear Power Plant

curement while basically adopting a strategy ofhas led to delays in restarting other nuclear reactors

long-term agreements with politically stable regions.

throughout the country that were undergoing regular

At present, Tokyo Gas procures LNG through long-inspections. In this context, we expect to see con-term agreements with 10 projects in six countries.

struction of new gas thermal power generation facil-

Recently, we have been diversifying our resource

ities that are alternative power sources, as well as

procurement portfolio by actively pursuing procure-the expansion and increased capacity utilization ofment of unconventional forms of natural gas. In

existing facilities, which will lead to an increase inaddition to the new Pluto and Gorgon Projects for

LNG imports. Nevertheless, we can look forward toconventional forms of natural gas, in March 2011 wea number of new LNG projects and an increase insigned an agreement to purchase LNG from thethe supply of shale gas and other unconventional

Queensland Curtis LNG Project, the world’s first coal-forms of natural gas. We expect this will permit suf-

bed methane (CBM) LNG project. By obtaining someficient LNG supply capacity and a better demand-

upstream interests through projects such as these,

supply balance in the long term.

we are assuring the stable procurement of resources.
In May 2011, we decided to participate in a shale gas

Stable Procurement that Meets Requirements

development project in Canada. Our ultimate aim is to

Amid concerns about tight gas supply in the shortensure competitive LNG procurement by converting

term and our dependence on imports for nearly 100%

shale gas produced in North America to LNG andof LNG, the raw material used to produce natural gas,then importing it into Japan.

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Cordova Embayment

Bayu-Undan Gas Field in the Timor Sea
Gas produced at this gas field is transported to the Darwin LNG Plant,liquefied, and sold. This is the Company’s first upstream project.

Q:4

What criteria do you apply for acquiring upstream
interests? Also, please outline the Company’s policy
going forward.

Stable Procurement of Gas Resources is

ering a certain internal rate of return (IRR). I should

the Primary Objective

also mention that we are already receiving dividends

When acquiring upstream interests, we look for LNG

from the Darwin Project, our first upstream project. In

procurement candidates that enable us to (1) strength-

the overseas independent power producer (IPP)en our relationship with the vendor and thus achieve

wholesale electricity business, meanwhile, instable, long-term LNG procurement; (2) obtain the lat-

December 2009, we acquired a thermal power gen-est important data, including data about short- anderation operation in Mexico together with Mitsui &long-term LNG supply capacities; and (3) reduce toCo., Ltd. through our holding company. Although thisa certain extent the risks associated with fluctua-

is not an upstream interest, it has enabled us totions in crude oil prices and exchange rates. We

strengthen our global LNG value chain.

also seek projects from which we can expect toreceive solid returns.

Today, there are few projects that can fulfill suchstringent investment criteria. If a promising project

At present, Tokyo Gas has a 3.07% interest in thecomes along, however, we will not hesitate to invest

Darwin Project, a 5.0% interest in the Pluto Project, ain it while maintaining a sound financial position that

1.0% interest in the Gorgon Project, and a 1.25%

gives us financial leverage whenever needed.

which are in Australia.
As for the risks associated with acquiring upstream
interests, when looking at the estimated profitabilityof a project, we set fairly conservative standards for
crude oil prices and other criteria. A project must also
be able to meet the investment benchmark of deliv-

TOKYO GAS ANNUAL REPORT 2011

interest in the Queensland Curtis LNG Project, all of

11

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:5

Please tell us about the Company’s infrastructure plans
for the future. Also, hasn’t the recent earthquake beena major impediment to infrastructure development?
In May 2010, we completed construction of a central

Chiba-Kashima Line Progressing Steadily
We estimate that within the Tokyo Gas supply area,line that runs north to south through the trunk line thatwhich covers a 200-kilometer radius around Tokyo,

loops the Tokyo area. In addition to strengthening thethere is latent demand for around 9.0 billion m3 ofsupply stability of the loop trunk line, the line’s com-gas, especially in the industrial sector. This includes

pletion also raises supply capacity to the northern Kanto

demand for conversion from other fuels and cogen-region, where demand is projected to increase.

eration. In order to meet this growing demand forConstruction of a high-pressure pipeline connecting

natural gas, we are endeavoring to expand our man-

Chiba and Kashima, which is scheduled to begin serv-

ufacturing and supply infrastructures.

ice in March 2012, is also proceeding smoothly. This
too will enable Tokyo Gas to meet expansion indemand for fuel conversion and power generation.

Potential Demand of the Kanto Market(200-km area around Tokyo)

No Change in Completion Date of
the Hitachi Project

Cogeneration system/Power

100–200-km area:
2.0 billion m3

0.3 billion m3

We estimate that between 2016 and 2020, theCompany’s gas sales volume will reach the upper limit

Fuel conversion

1.7 billion m3
Cogeneration system/
Power

Fuel conversion

5.1 billion m

Total

3

of its current supply capacity of 18.0 billion m3 peryear. Consequently, we are implementing the Hitachi
Project, which will see the construction of a fourth3

9.0 billion m

1.9 billion m3

LNG terminal, “the Hitachi LNG Terminal,” in the
100-km area:
7.0 billion m3

Ibaraki Port Hitachi District in Ibaraki Prefecture, as
well as a high-pressure pipeline from the terminal to
Moka City, Tochigi Prefecture. We brought forward
the original scheduled completion date by two years,

Facility Investment Plans (Non-consolidated)(Years ended March 31)
2011(Forecast)

LNG facilities
Other
Production facilities
Trunk line investment
OtherTOKYO GAS ANNUAL REPORT 2011

Supply facilities

12

Business facilities

Billions of yen

2016

2012–2016(Total)

7.6
2.5
10.1

¥ 103.2
22.3
125.5

11.9
55.1
67.0
34.3

7.7
54.5
62.1
29.2

64.0
283.5
347.5
132.7

126.3
0.5

118.8
0.5

101.5
0.5

605.7
2.9

¥ 126.8¥ 119.3¥ 102.0¥ 608.5

2012

2013

2014

2015

4.4
5.7
10.2

¥ 20.5
4.6
25.1¥ 35.4
10.2
45.6¥ 23.8
3.2
27.1¥ 15.9
1.7
17.5

12.8
62.2
75.0
19.6

9.6
60.4
69.9
25.0

18.8
56.5
75.3
18.1

16.0
57.0
73.1
26.2

104.9
0.9

120.0
0.8

139.1
0.6

¥ 105.7¥ 120.9¥ 139.7¥¥

Subtotal gas business facilities(Reduction entry of land
contribution for construction)
Incidental facilities
Total(Reduction entry of land
contribution for construction)

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Major Plans for Infrastructure Development

Gunma
Tochigi

Ibaraki-Tochigi Line

Hitachi LNG Terminal (Plan)

Gunma Line

IbarakiNaganoSaito Line

Kashima-nada Sea

SaitamaKashima Waterfront Line

Chiba-Kashima Line

Yamanashi

Tokyo
Tokyo Bay

Yokohama Line II

Kanagawa
Chiba

New Negishi Line
Minami Fuji Line

Sodegaura LNG Terminal
Sagami Bay

Shizuoka

Ohgishima LNG Terminal

Tokyo Gas-invested high-pressuretransmission pipelines
Tokyo Gas LNG terminals

High-pressure transmission
pipelines of other companies

Negishi LNG Terminal

Suruga Bay

Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission
pipelines
Tokyo Gas high-pressure transmission
pipelines under construction

and plan to start operations in fiscal 2015. The new

It is possible that the recent earthquake will neces-terminal will add another Pacific Coast location to thesitate a review of some of the design specifications,Company’s existing LNG terminals, which are con-including aspects that address liquefaction and tsuna-centrated around Tokyo Bay. The extension of themi planning. Nevertheless, with the need for the

pipeline from northern Kanto will dramatically improvestable supply of energy greater than ever, we havethe stability of our supply network.

not changed the scheduled completion date.

Demand Outlook and Facility Formation Plans (Non-consolidated)(Years ending March 31)
Billion m3

Saito Line
Ibaraki-Tochigi Line

16.0

15.0

14.0

Chiba-Kashima Line
Kashima area high-pressure
distribution pipeline

14.3 billion m

14.8 billion m 3
15.2 billion m 3

3

LNG vaporizer and LNG tank
(Hitachi LNG Terminal)

13.8 billion m 3
13.4 billion m

3

LNG tank(Ohgishima LNG Terminal)
LNG vaporizer(Sodegaura LNG Terminal)

13.0
LNG vaporizer(Negishi LNG Terminal andOhgishima LNG Terminal)

12.0

2012

2013

2014

2015

2016

TOKYO GAS ANNUAL REPORT 2011

New Negishi Trunk Line
Yokohama Trunk Line
(2nd phase)

13

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

No.1 and No.2 units at the Ohgishima Power Station (Each has an output capacity of 407.1 MW)Q:6

At a time when there are concerns of insufficient electricity supply in the Tokyo metropolitan area, what sortof measures is Tokyo Gas taking?

Full Cooperation to Ensure Stable

time, we will step up the promotion of onsite power

Electricity Supply

generation and gas air conditioning.

This summer and next summer, the Japanese gov-

At present, the Tokyo Gas Group has four power

ernment, society, and companies face the same

stations, which has increased our total power genera-

problem of adjusting electricity usage to meet sup-tion capacity to 1,300 MW. In 2010, we commissioned

ply capacity, especially in the Tokyo metropolitan area.

the No.1 and No.2 units at the Ohgishima PowerAs one of the energy providers serving that area, theStation in March and July, respectively. This station,

Tokyo Gas Group will do whatever it can to help alle-

which contributes 610 MW to our power generationviate this problem.

capacity, uses cutting-edge combined cycle gas tur-

In addition to the stable supply of gas for powerbines that boast a 58% power generation efficiency.

generation, we will offer our cooperation by raising

Immediately after the earthquake when electricity sup-output of our own power stations based on requests

ply was tight, we helped stabilize electricity supply by

from the Tokyo Electric Power Company. At the same

putting these Group power stations into full operation.

TOKYO GAS ANNUAL REPORT 2011

Tokyo Gas Group’s Large-scale Power Stations

14

Tokyo Gas Our ownershipinterest
share

Company

Capacity

Operating status

Tokyo Gas Baypower

100 MW

100%

100 MW

Startup in October 2003

Tokyo Gas Yokosuka Power 240 MW

75%

180 MW

Startup in June 2006

Kawasaki Natural Gas
Power Generation

840 MW

49%

410 MW

Ohgishima Power

Startup in April 2008
Startup in March andNo.1 and No.2 units at the810 MW75%

610 MW

July 2010** The timing for the construction of No. 3 unit (output capacity of around 400 MW) has not yet been determined.

⇒

Our ownership shareto 1,300 MW

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:7

Since the earthquake, there has been more demandfor in-house power generation systems. Have you had
many inquiries for cogeneration systems? Also, please
update us on the use of renewable energy sources.

Higher Demand from Factories andand “ENE-FARM” fuel cells, and “SOLAMO,” a gas

Hospitals for Cogeneration Systems

hot water system using solar heat. We are also

Due to concerns of tight electricity supply during thisbranching out into the wind power generation busi-

summer, we have received more and more inquiries

ness, as reflected by our investment in Shonai

about dispersed energy systems, such as cogenera-

Wind-Power Generation Co., Ltd. in April 2011.

tion systems, as a means of securing an emergency

We also offer cutting-edge “smart energy net-

power source. These include a large number ofworks.” They are similar to the “smart grid” concept,

inquiries from factories and hospitals. Depending on

which supplies electricity through efficient supply-

the size of the system and how it operates, someside and demand-side control. A smart grid uses a

systems can be installed relatively quickly, while oth-“smart meter,” which is a networked electricity

ers require more time. We would like customers tometer, to measure the amount of power consumed

make use of schemes such as the subsidies offered

and the amount of power generated by solar, wind,by the Japanese government so that we can meetbiomass, and other renewable energy sources. A

their needs for stable electricity as soon as possible.

“smart energy network” takes this concept one step

Looking further ahead than this summer, we arefurther because it combines electricity and heat gen-focusing on promoting increased adoption of cogen-erated by gas cogeneration systems to provide aneration systems. Our solutions are not confined to

optimal mixture of different energy forms at a local

emergency power supplies, but extend to systems

community level. A smart energy network, inde-that use waste heat, as well as highly energy-efficientpendent of a large-scale system-based electricity

systems that have minimal transmission loss because

network, acts as a dispersed power source that can

the power is generated where it is used.

supply emergency power when a disaster occurs.
Currently in the demonstration stage, we are trialing

Proposals for Smart Energy Networks

smart energy networks in Yokohama and other loca-

Tokyo Gas offers a variety of options for using renew-

tions. Going forward, we would like to present

able energy sources. They include double power

proposals for smart energy networks at the town

generation, which combines solar power generation

planning stage of regional redevelopment projects.

Smart Energy Network

Solar heatcollection facilities

GE

Photovoltaic power
generation facilities

Controlmanagement
system

GE
GE
GE
GE

Heat conduit
Heat use

Photovoltaic power
generation facilities

Information and telecommunications network<Specified area>
Heat interchange, etc.

Smart energy network control
management system

Factory

Commercial
building

Heat use
Electric power network

GE
Solar heat
Cogeneration systemcollection facilities

GE

GE

Heat use

Heat use

TOKYO GAS ANNUAL REPORT 2011

<Wide area>
District heating andElectric power interchange,
cooling facilities, etc.
etc.
Large-scale
Solar heatcogenerationcollection facilities

Photovoltaic power
generation facilities

Large-scale redevelopment area

15

GROWTH THROUGH THE CREATION OF SHARED VALUE
SPECIAL FEATURE 1: INTERVIEW WITH THE PRESIDENT

Q:8

Has the change in earnings affected the Company’s
basic policy on shareholder returns? Please tell us
about your investment policies and plans.

Stable Dividends a Top Priority

Pursue Aggressive Investment while

Our basic policy under the medium-term manage-

Maintaining Financial Soundness

ment plan, which ends in fiscal 2013, is to maintain a

In fiscal 2011, we forecast a decline in income due to

60% total payout ratio, including dividends and sharehigher raw material costs and the absence of one-buybacks. While remaining committed to paying sta-time gains recorded in fiscal 2010. We also expect

ble dividends, we also plan to steadily increase

the D/E ratio for fiscal 2011 to increase from 0.68 to

dividend payments.

0.73. One main factor behind this increase will be

In the year under review, we declared an annual

the start of full-scale capital investment in the Hitachi

dividend of ¥9.00 per share for the second consecu-

Project of more than ¥100 billion due to the need totive year after raising the annual dividend by ¥1.00

expand our manufacturing and supply infrastructuresin fiscal 2009. In addition to total dividend payments ofto keep up with the rising demand for natural gas.

¥24.1 billion, we will allocate ¥34.0 billion to repur-

However, we expect to continue generating stablechasing Company shares, which will be retired swiftly

operating cash flows and plan to make steady invest-

thereafter during fiscal 2011. These actions will bringments while maintaining a sound financial position.

the total payout ratio to 60.9%.
For fiscal 2011, we forecast a net income of ¥37.0
billion. This forecast is based on losses caused by aslide time lag effect coupled with expected increases
in crude oil prices. Even so, we intend to maintain

Change in Total Payout Ratio(Years ended March 31)
80

annual dividends at ¥9.00 per share.

%

73.5
63.3

60.1

60

50.1

51.1

60.1

60.9

45.3

Share
repurchases

40
21.3

25.3

20

Dividends

0

07

08

Total payout ratio

09

10

11

Dividend payout ratio

Use of FY2011 Cash Flow
Capital expenditure

Major projects

Tokyo Gas Co., Ltd.: ¥122.3 billion

Production facilities: ¥25.1 billion (+¥16.0 billion)
Construction of Hitachi LNG terminal, Ohgishima LNG tank, etc.

(+¥20.0 billion, +19.6%)

Distribution facilities: ¥70.2 billion (–¥4.0 billion)

TOKYO GAS ANNUAL REPORT 2011

New trunk & service line, maintenance (existing lines, etc.)16Service and¥26.9 billion (+¥7.9 billion)

maintenance facilities: System-related cost, renovation of aging facilities, etc.
Consolidated¥47.4 billion

Overseas business (Total ¥21.3 billion for Australian subsidiary)

subsidiaries total:(–¥2.5 billion, –5.1%)

Renovation of district heating and cooling system, etc. ¥8.7 billion

Total¥167.0 billion (+¥16.8 billion, +11.2% after eliminations)(ENERGY ADVANCE Co., Ltd.)* Figures in parentheses refer to comparisons with FY2010.