TOKYO GAS ANNUAL REPORT 2018

Business overview

Overseas business

Net Sales and Number of Projects(¥ billion)

50

Net sales (LH)

Number of Projects (RH)

2540

2030

1520

1010500
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Oil Price and Foreign Exchange Rate($/bbl)

120

Crude Oil Price (LH)

Foreign Exchange Rate (RH)

(¥/$)

200

90

150

60

100

30

5000
2011.32013.32015.32019.32017.3(Planned)

Building an LNG value chain

Projects and business locations
OutlineWe have expanded and increased overseas bases and staff, andhave participated in LNG or natural gas related business projects
in Australia, North America, and Southeast Asia, all in order tomake overseas business another major source of growth for theTokyo Gas Group, as indicated in the Challenge 2020 Vision.
Looking ahead, in addition to conducting discussions with a view
to further business development, we will also work to ensure
efficient distribution of management resources as we advanceour overseas business operations.

Birdsboro
Cove Point LNG
East Texas

BarnettEagle FordBajio

TGES America

Tokyo Gas America
Ltd.
MT Falcon

Message
Tokyo Gas America Ltd.

Nozomu Nagai

Strengths
Know-how in the midstream and downstream businesses
accumulated in Japan
Global network established through activities such as material
procurement and business participation

Risks
Business operations may be stalled, or the burden of expenses
may increase, as a result of country-specific laws, regulations
and/or business practices
Fluctuations in crude oil/gas prices and foreign exchange rates
may impact the revenues and expenditures of all overseas
business operations
Net sales

Segment profits¥41.5 billion¥7.7 billion

FY201733

Empire

Upstream BusinessMidstream- and Downstream BusinessBusiness Location

FY2017

I came to work at Tokyo Gas America—which has its primary business location in
Houston, Texas—in 2015. Until recently I had been responsible for new investment
projects in the shale gas business, but as of 2017 I have been working on secondment
at Castleton Resources LLC. (“CR”), a shale gas business company in which Tokyo Gas
recently acquired shares, and have gained six months of field experience in shale gas
development.
Shale gas development demands high-difficulty technological capabilities, in achieving
the efficient excavation of 5,000-meter-long gas wells. This is an area in which TokyoGas had only limited expertise, and we are working amongst professionals with decadesof experience in the business. Despite this, I worked diligently and to the very best of
my abilities, and was able to identify the cause of digging difficulties occurring deep
underground—where we cannot physically see—by making effective use of data. As aresult, I was able to contribute to increasing our digging efficiency, which was a sourceof great joy and satisfaction.
I am currently working at CR headquarters, making assessments of the size ofunderground reserves and analyzing development costs. I am also learning about
American corporate culture, organizational structure, and cost-cutting initiatives.
In the future, I will continue contributing to the further advancement of our US business
operations and our overseas business operations overall, based on the experience gained
during my secondment.

our participation in five new projects has been decided. These
include projects in North America, which offers extensive
opportunities for market entry, and in Southeast Asia, where
there is growing use of natural gas.
North America

UpstreamBusiness

Operation andmanagement ofexisting projects
Exploration of newprojects

Gas-fired thermal
power generation
Exploration of newprojects

Operation andmanagement ofexisting projects

LNG terminal business
Gas-fired thermal
power generation
Gas supply
Energy service
Exploration of newprojects

Tokyo Gas America Ltd.

Tokyo Gas Asia Pte. Ltd.

Tokyo Gas Australia Pty Ltd.

Houston, Texas

Singapore

Perth & Brisbane

TGES America Ltd.

Bangkok Representative
OfficeSouth Carolina
Acario Ventures

Silicon Valley

ThailandOthers

Jakarta Representative
OfficeParis Representative OfficeIndonesia

FranceHo Chi Minh & Hanoi
Representative Offices

Overall image after
full deregulation

Business
Location

Australia

VietnamManila Representative
OfficePhilippines
Kuala Lumpur
Representative Office

Malaysia

Upstream Business
Monitoring commodity price trends and carefully
estimating the productivity and reserves of gas fields we areproceeding to form appropriate alliances with experienced operatorsand invest in prime assets. Tokyo Gas has so far participated in threegas development projects in the United States.

Investment
ratio

U.S.A. Barnett shale gas development

Mar. 2013

25%

U.S.A. Eagle Ford shale gas development

Jun. 2016

25%

U.S.A. East Texas gas development business

May 2017

30%

Start ofParticipation

Investment
ratio

gas-fired thermal power plant business
Mexico Natural(Bajio Power Plant)

Oct. 2004

49%

gas-fired thermal power plant business
Mexico Natural(MT Falcon Power Plant)

Jun. 201030%

energy services business
U.S.A. Industry-oriented(TGES America)

Feb. 2015

100%

gas-fired thermal power plant business
U.S.A. Natural(Empire Power Plant)

Oct. 201625%

gas-fired thermal power plant business
U.S.A. Natural(Birdsboro Power Plant)

Apr. 201733.33%(Foundation)

Financial data

Birdsboro Power Plant (under construction)

Project Name

Invisible assets

When planning gas-fired power generation
we will continue to use well-defined criteria to select projects in which
to participate, giving due consideration to demand and supply ofelectricity, competition with other power sources, regulations andbusiness environments on a state-by-state basis. We have recentlyparticipated in two gas power generation businesses in the East Coastregion, where there is large-scale demand.
Midstream- and Downstream BusinessCorporate governanceStart ofParticipation

Project NameBusiness overview

North America
In North America, there is a substantial
demand for energy. Deregulation and market
trading of energy are advancing, and we can
expect to see long-term growth in the natural
gas market. In this market, we will continue
to participate in upstream, midstream anddownstream businesses. In the future, we will
aim to increase synergies between individual
business operations, and to acquire anduse knowhow that will contribute to ourother businesses both in Japan and abroad,while at the same time establishing a stablerevenue base.

GPS2020

Midstreamand
Downstream
Business

Southeast Asia

Message

We plan to expand the breadth and depth of our overseas
business operations, in accordance with the characteristics ofeach region we operate in, by leveraging the global LNG value
chain experience that we have developed both domesticallyand overseas. We will also strengthen our position in the LNG
market, as the company that people associate most with LNG(i.e. “Think LNG, think Tokyo Gas.”)Additionally, we will continue to invest in projects that
contribute to the construction of energy infrastructure, with a
primary focus on midstream to downstream businesses, forwhich we can expect to see low-volatility and stable returns.
We will aim to build a portfolio that is less influenced byfluctuations in energy prices, and continue working toincrease the added value of our existing projects.
We are also setting our sights on expansion into new fields ofbusiness which are expected to see a growth in demand in
the future, including floating storage and regasification unit
(FSRU) and renewable energy; and entry into new overseas
regions where we can expect to see market growth, andwhere we can leverage our strengths.
The Tokyo Gas Group’s overseas operations currently span
13 business locations in nine countries. Over the past year,Introduction

Aiming to develop and advance our overseas
business operations
as a global total energy business operator

34

TOKYO GAS ANNUAL REPORT 2018

Business overview

Overseas business

Southeast Asia
Tokyo Gas Group’s Bases in Southeast Asia
Hanoi Representative Office

Manila Representative Office

Thailand Representative Office
Ho Chi Minh City Representative Office

Kuala Lumpur Representative Office

Amid rapid economic growth, Southeast Asia isexpected to see a rise in demand for natural gas andan increase in imports of LNG. Tokyo Gas aims to workwith the respective governments of and companies inthese countries in order to contribute to the building ofenergy infrastructure, and the introduction of natural
gas in these regions.
Specifically, we will be engaging in midstream anddownstream business operations including LNG
terminal, gas-fired thermal power generation, gas
supply and energy service businesses.
In addition to opening offices in Indonesia, Thailand, andVietnam in 2015, we established a representative officein the Philippines in April 2017. Our ultimate goal for thefuture is to form an LNG value chain in Southeast Asia.

Tokyo Gas Asia Pte. Ltd. (Singapore)

Jakarta Representative Office
Midstream- and Downstream BusinessIn Asian countries, where LNG
imports and natural gas usage are expected to increase, theTokyo Gas Group will utilize its knowledge and experience
regarding the use of LNG and natural gas in order to provide
wide-ranging value to customers, from natural gasengineering to operational know-how and energy-saving
services, with the aim of contributing to the development of
natural gas infrastructure.
Specifically, we will seek to contribute by participating not
only in tangible aspects (such as in the construction of LNG
terminals, power stations and other energy infrastructure thatwill occur in various countries in the near future), but also
intangible aspects such as demand creation, LNG terminal
operation and LNG procurement. In this way, we will seek toincrease our involvement and presence across the entire LNG
value chain.
In 2017, we invested in gas distribution businesses in Vietnamand Indonesia, while in 2018 we have made the decision toinvest in the gas business company in Thailand.
In the field of engineering, in 2017 we were awarded an orderof feasibility studies and engineering work concerning theconstruction of LNG receiving terminals in Bangladesh, whilein 2018 we were awarded an order to provide project
management consultant (PMC) services for the constructionof LNG terminals in Thailand.

MessageBangkok Representative
OfficeManakan
Lertsamattiyakul

35

Jakarta Representative OfficeStart ofParticipation

Project Name

Philippines

Submitted declaration of interest
regarding formation of an LNG value
chain

Oct. 2017

VietnamInvested/acquired a stake in a gas
supply business company and formed astrategic allianceJul. 2017

Thailand

Secured an order to provide PMC
services in the construction of the NongFab LNG receiving terminal

Jan. 2018

ThailandInvested/acquired a stake in a gas supply
business company

Jan. 2018

Indonesia

Invested/acquired a joint stake in a gas
supply business company

Oct. 2017an order for work relating to LNG
Bangladesh Secured
receiving terminalsJul. 2017

The Thai government is currently advancing the deregulation and promotion of third-party entry to the natural gas market, andprivate-sector companies—including overseas-based corporations—are expected to enter the market.
In view of this, one of my roles is to gather energy-related information by holding meetings and conducting interviews withgovernment agencies and other private-sector companies on matters such as government policy, regulatory trends, and thestate of other companies’ activities; and to report that information to our Tokyo head office, and to Tokyo Gas Asia Pte. Ltd. inSingapore (which is responsible for the management of the Asia region).
In January 2018, we participated in the gas supply business, which was a first for a private-sector company in Thailand. We
have received many inquiries from outside parties, indicating a high level of interest in the gas retail business.
In 2011, Thailand became the first country in Southeast Asia to introduce LNG. Due to the depletion of domestically-producedgas reserves, LNG imports are expected to continue growing further in the future. We are receiving numerous inquiries fordetails and requests to visit our LNG terminals, primarily from government personnel.
I myself have many years of experience in the field of power generation, but this was actually my first post in the world of LNG.
Through opportunities such as this, I want to learn more about a wide-range of topics concerning the LNG value chain, andto continue to act as a bridge between Thailand and Japan in the future.

Australia
Participating projects and business locations
Ichthys

We have invested in five projects in Australia,
which has grown as a major LNG supply base to the East
Asia. Four of these LNG projects are already in operation
today. We will continue to focus on the operation andmanagement of these projects, as well as the Ichthys Project(which is scheduled to commence operation in the nearfuture), with a view to maximizing their value as Group assets.
Upstream Business

DarwinPlutoGorgon

GPS2020

Queensland Curtis

Tokyo Gas Australia Pty Ltd.
Perth Office

Tokyo Gas Australia Pty Ltd.
Brisbane Office

Overall image after
full deregulation

Tokyo Gas Australia Pty Ltd. (Perth)Start ofParticipation

Tokyo Gas Interest

Start of Production(Operation)

Darwin

3.0

2003

3.07%

Jan. 2006Pluto

4.7

2008

5.00%

Apr. 2012

Gorgon

15.6

2009

1.00%

Mar. 2016

Queensland Curtis

8.5

2011

1.25% (Gas Field) / 2.50% (No. 2 Liquefaction Plant)

Dec. 2014

Ichthys

8.9

2012

1.575%

2018 (Planned)

Corporate governance

LNG Production Capacity(Million tons / year)

Business overview

Gorgon LNG Project

Project Name

Message

Participating project
Business Location

Introduction

Investing our energies into the operation and management of existing projects

Invisible assets

Sustainable Development Goals

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

In 2017, we invested and acquired stakes in gas supply businesses in Vietnam (July) and Indonesia (October). In January
2018, we acquired a stake in a similar business in Thailand. In October 2017, we also submitted a declaration to thegovernment of the Philippines regarding our interest in constructing an LNG value chain.
By leveraging our Group’s technological capabilities and know-how to provide energy solutions and construct infrastructure,
we are seeking to promote the widespread adoption of clean, environmentally-friendly natural gas. We also hope that
contributing to the creation of jobs and economic development through our local business operations will lead to an increasein educational opportunities and help to eliminate disparities in wealth and living standards in those countries.

Financial data

Taking up the challenge of creating an LNG value chain in Southeast Asia

36