SPECIAL FEATURE 1

Four Keys to the Future
Growth Potential of Tokyo Gas

Fact 1

Fact 2

Fact 3

GROWTHPOTENTIAL

ENVIRONMENTALFRIENDLINESSSERVICE AREA

18%

55%

40%

Fact 4COMPREHENSIVE
STRENGTH

No.101

Fact 1GROWTH POTENTIAL
Until February 1995, city gas suppliers in Japan were allowed regional monopoly supply for all of theircustomers, but were subject to various regulations, such as supply obligations and rate controls. However,against a background of deregulatory initiatives and the introduction of the principle of competition inJapan and overseas, the deregulation of the gas supply industry was commenced in stages from March
1995, with the objectives of promoting competition among suppliers, increasing management efficiency,and expanding the energy choices available to customers. As a result, the growth opportunities available
to suppliers expanded.
Gas and Electricity Deregulation Schedule and Share of Total Volume in Deregulated Fields
Before 2004

City Gas Industry

2004

353% 1 million mor more

(Annual volume)

Large-scale plants (entire manufacturingindustry) / large-scale commercial facilities

Major areas

56%(Contracted maximum demand)

500,000 m3
or moreMedium-sized plants (chemicals /metals plants, etc.) /large urban hotels / large-sized hospitals

26% 2,000 kW
or moreElectric Power Industry

2007

40%

3
63% 100,000 m
or moreSmall-sized plants (textile and machinery plants, etc.) /hospitals / business hotels

500 kWor more50 kW
63% or moreIn the gas industry, the scope of deregulation was extended to customers with annual contracted volumes of more than 2 million m3 a year in 1995 and those with annual
contracted volumes of more than 1 million m3 a year in 1999. Figures for share of total volume are based on fiscal 2007 data. (Source: The Japan Gas Association)
In the electricity industry, meanwhile, the scope of deregulation was extended to customers with annual consumption of more than 2,000 kW in 2000. (Source: Agency for
Natural Resources and Energy, the Market Monitoring Subcommittee 1st Report, April 2005)

Gas Sales Volume (Results and Forecasts)

18%(Million m3)
15,00012,000

9,000

6,000

3,000

0
Years ended
March 3100
Residential01

02

03

Commercial and others04
Industrial

0506

070809Wholesale

1011121314Forecasts

Growth in the Deregulated Sector
In addition to the deregulation of the city gas supply industry, the electric power industry
was also deregulated at the same time. The deregulation of both gas and electric supply
made it possible for other companies to supply gas in our service area. On the other hand,
it also enabled Tokyo Gas to supply gas and electricity to customers in the service areas ofother companies. In this setting, the Company’s growth is supported by new operationalpillars. These include the power generation business, which draws on existing infrastructure, and cogeneration systems, which use gas and supply heat and electricity. TheCompany will aim for sustained growth as an integrated energy business that supplies
energy and heat in addition to its core business—the supply of city gas—in the Tokyo
metropolitan area and the Kanto region.

02

EXPECTING

18% GROWTHIN GAS SALESVOLUME DURING
THE NEXT 5 YEARSFact 2ENVIRONMENTAL FRIENDLINESSIn comparison with other fossil fuels, the combustion of natural gas produces limited emissions of carbon
dioxide (CO2) and nitrogen oxide (NOx), and no emissions of sulfur oxide (SOx). Natural gas is a form ofenergy with an extremely low environmental burden. Accordingly, the Company believes that its operations—promoting the use of natural gas by extending pipelines and expanding markets—contribute to
the development of environmentally friendly society.

Comparison of Emissions (Coal = 100)

CO2NOx

100
80100
70

Coal

Oil

60

100
70

Coal

Oil

40

CO2 Reduction Effect from Using
Natural Gas for Industrial Furnaces

SOxCoalOil

Natural gas＋
Conventional
burner0
Natural gas

Natural gas

Heavy oil A＋
Conventional
burnerNatural gas100–25%7545
Forecast for Global Energy Supply Under Various IEA Scenarios

Primary Energy Supply(million tons crude oil equivalent)

9,000

Even in the scenario under which
the atmospheric concentration of CO2in 2050 is reduced to the lowest level,
the use of natural gas is expected
to increase.

6,000

+34%
–27%

–18%

3,000

–30%
Total:Up to –55%

Natural gas＋
High-efficiency
burnerEffect of convertingto natural gas(Converting from coal, oil, etc.,
to natural gas)

Reduction in CO2 emissions
Reduction of about 25% from oil0Natural gasOil

Coal

Nuclear power

Biomass

Other renewableenergy

2005 Actual
Baseline scenario: Current conditions continue
ACT Map 2050 scenario: Atmospheric concentration of CO2 in 2050 is reduced to 550 ppm or lower
Blue Map 2050 scenario: Atmospheric concentration of CO2 in 2050 is reduced to 450 ppm or lower

According to the Intergovernmental Panel on Climate Change (IPCC), to prevent a variety of adverse
factors leading to climate change on a global scale, the atmospheric CO2 concentration needs to be
reduced to less than 450 ppm (IPCC Fourth Assessment Report).

Effect of higher efficiency(Introduction of high-efficiency equipment at the time of fuel conversion)

Further CO2 reductions

Strong Demand for Clean Energy
Under the Blue Map 2050 scenario announced by the International Energy Agency (IEA)
calling for CO2 emissions to be cut in half by 2050, the use of environmentally superior
natural gas is expected to increase. In recent years, companies have announced their own
energy-saving and CO2 reduction targets, and there is a notable trend toward theaggressive introduction of energy-saving/new energy facilities. The shift toward the use ofnatural gas as a fuel has begun to support the Company’s growth. With a focus on
methods of using new energy in a low-carbon society, the Company is developing andpromoting highly efficient appliances that use city gas. We are also nurturing technologies to realize a reduced environmental burden. These have led, for example, to our

CO2 EMISSIONS FROMGAS CAN BE REDUCED55%

TOLESS
THAN CO2 EMISSIONSFROM OIL

achievement of a world first with the market introduction of “ENE-FARM,” a residentialuse fuel cell.

03Fact 3

SERVICE AREA
Even among Japan’s city gas suppliers, who all handle the same environmentally friendly natural gas,
Tokyo Gas has a key strength in its location in the Kanto area. This is the market with the highest energy
demand in Japan and a region that is expected to continue to grow in the years ahead. Supported bythis strength, Tokyo Gas is positioned to achieve continued growth in both number of customers andgas sales volume in the future.

Breakdown of GDP of Japan by
Major Area (Year ended March 2007)

Tochigi

Gunma

Hitachi-Moka Line
HitachiLNG Terminal
Gunma Line

IbarakiNaganoSaitama
Saito Line

Total: ¥518.8 trillion
Chiba-Kashima LineCentral Line II

YamanashiTokyo
Yokohama Line IIKanagawa

Minami Fuji Line

Ohgishima
LNG Terminal
New Negishi Line
NegishiLNG Terminal

39.0% The Tokyo area: Tokyo, Kanagawa, Saitama,Chiba, Ibaraki, Tochigi, Gunma, Yamanashi,and Nagano prefectures
15.8% The Osaka area: Osaka, Hyogo, Kyoto, Shiga,Nara, and Wakayama prefectures
10.0% The Nagoya area: Aichi, Gifu, and Mie
prefectures
Source: Cabinet Office, Government of Japan

Sodegaura
LNG Terminal

Chiba

Share of Tokyo Gas of Total CityGas Sales Nationwide (Year ended March 2009)

Shizuoka

Tokyo Gas Group Service Area
Tokyo Gas Group service area
Service areas of wholesale customers
Tokyo Gas high-pressure transmission pipelines
Tokyo Gas high-pressure transmission pipelines under construction
Tokyo Gas-invested high-pressure transmission pipelines
Tokyo Gas LNG terminals
High-pressure transmission pipelines of other companies

43.4% Tokyo Gas Total: 13,942 million m3
10.8% Residential
9.4% Commercial and others
17.5% Industrial
5.7% Wholesale

Japan Total: 32,097 million m3Source: The Japan Gas Association web site,(Gas Sales Volume JGA Newsletter)

Substantial Latent Demand and Growth Potential
There are a large number of city gas suppliers in Japan—about 210—but the three largest
account for approximately 80% of the total city gas sales volume. Tokyo Gas has a market
share of 43%, the largest share of any of these companies.
The location of a supplier’s service area has a significant influence on its operational
scale. The Kanto area is Japan’s largest economic region, accounting for about 40% ofJapan’s GDP, and even though Japan faces population decline overall, the Kanto area isone of the few regions in Japan that is expected to benefit from inward migration.
Moreover, a key geographical feature of the Kanto region is that it is relatively easy toextend pipelines out to the peripheral industrial regions. In the future, we will make fulluse of this geographical advantage as we work to uncover potential demand that exists
in the area extending 200 km from Tokyo and to provide gas to more customers.

04

KANTO AREA:

40% OF
JAPAN’S GDP

Fact 4COMPREHENSIVE STRENGTH
We are leveraging the business opportunities stemming from a deregulated competitive environment,environmentally friendly natural gas, and our promising operational base in the Kanto region. Moreover,
we are drawing on the strength of our global LNG value chain, extending from upstream to downstream,and providing customers with a wide range of value and services related to energy. Moving forward, as
the No. 1 gas supplier in Japan in terms of gas sales volume, Tokyo Gas will also strive to be No. 1 incomprehensive strength.

12People Supporting the Comprehensive Strength of the Tokyo Gas Group

1 Procurement / Transportation
Safety inspection on an LNG tanker. Using ourown fleet of seven vessels, we have increased ourprocurement capabilities. We obtain more than
10 million tons of LNG a year from regions suchas Australia, Malaysia, and Brunei, representing
the second-largest LNG import volume in Japan.

2 Transport of city gas
through pipelines
Maintenance and management of high-pressure
gas pipelines. Supporting the foundation of safegas transport. The pipeline network of Tokyo Gas
extends to 57,000 km.

343 Engineering
Introducing gas facilities and conducting
combustion tests at the plants of customers whohave converted to the use of natural gas as a fuel.
In the industrial sector, we provide total solutions
that extend from proposing gas facilities tooperating, maintaining, and upgrading them.

4 Gas appliance installationand inspection
A Tokyo Gas LIFEVAL employee inspects gas
appliances at a customer’s residence. Tokyo Gas
LIFEVAL is the integrated point of customer contact
for our efforts to carefully meet diverse customer
needs in the residential sector.

Providing Strong Benefits through Our LNG Value Chain
and Sales Capabilities

CONSEQUENCETokyo Gas conducts an integrated energy business, with natural gas as its core energy
source. The Company leverages its comprehensive strengths at each stage of the LNG
value chain. In LNG procurement, we have created a portfolio that supplements 10 longterm projects with short-term and medium-term projects, and this way we have achieved
stable procurement that can respond flexibly to future changes in the operating environment. With a focus on future growth, we are aggressively expanding terminals andNo.1
IN COMPREHENSIVE
STRENGTH

pipeline networks.
We have established a sales system in the residential sector that is based on close
links to local communities and provides one-stop solutions to meet increasingly diverseand sophisticated customer needs. In the commercial and industrial sectors, we areworking to expand gas demand through multi-energy supply, which involves combinations of electricity and other forms of energy, centered on natural gas; advanced energy
engineering capabilities; and energy services, including optimal utilization of facilities
and maintenance.

05