GAS BUSINESSBusiness overview

Applications of gas from the Tokyo Gas Group spans a wide range, from householdcooking, heating, and hot water, commercial air conditioning, industrial use, power
generation, and other usage. The Tokyo Gas Group has also extended coverage fromTokyo and its adjacent three prefectures (Kanagawa, Chiba, and Saitama) to North Kanto(Ibaraki and Tochigi) by lengthening its pipeline network so as to serve more customers.

OutlineSales Volume and Operating Profit(¥ billion)

200

Operating profit (LH)

(million m3 )20,000150

15,000Gas sales volumeNet sales

100

10,00011,536 thousand

15.7billion m¥1,040 billion

50

5,000

FY2016Equivalent to approximately 45% of gas
sales volume in Japan in FY2016

Number of customers

3FY201600
2008.3 2010.3

Strengths

Sales volume (RH)

2012.32014.32016.3 2017.3

Factors affecting revenues and expenses• Over 11 million customers as a base and the relationship of trust with them
• Delivery of safety and reliability to customers for many years

P.55

Crude Oil Price and Foreign Exchange Rate• The Kanto Region with its robust production/consumption activities (representing
about 40% of Japan’s GDP) is now in the service area($/bbl)

120

(¥/$)

Crude Oil Price (LH)
Foreign Exchange Rate (RH)200

• Safety-related know-how and energy solution technology• Potential difficulty in material procurement caused by the impact of country risks atimport sourcesRisks• Supply issues due to damage to production facilities stemming from a large-scaledisaster

90

150

60

1003050• Intensified competition driven by market deregulation; decline in demand causedby changing lifestyle12300
2008.3 2010.3

2012.32016.3 2017.3

Diversify resource suppliers
New LNG Project

Tokyo Gas is beginning to receive LNG from the Cove PointLNG Project, our first from the gas-rich shale source in NorthAmerica. This resulted in increasing the number of LNG
suppliers to 13 projects in 6 countries, and making Tokyo Gas
one of the foremost purchasers with diversified contracts inJapan. To enhance procurement stability we are considering
widening LNG procurement areas from Southeast Asia,Australia, and North America to include Africa.

SakhalinTokyo

Existing LNG Project■

LNG suppliersSpecificexamples

2002

2017

7 projects

13 projects

Procurement from the Cove Point
shale gas project, achieving three
ways of diversification

In fiscal 2017, Tokyo Gas is beginning to receive LNG from the Cove PointLNG Project, our first from the gas-rich shale source in North America.
In addition to diversification of our suppliers and total contract terms
and conditions through the procurement from Cove Point, we signed amemorandum of understanding on a strategic alliance with Centrica, theUK’s leading energy and services company in November 2016, which
contributes to diversification of the LNG network.

Cove Point

Cameron

Qatar
BruneiMalaysia
PlutoGorgon

212014.3

NWSDarwin
Ichthys

QC(Queensland Curtis)Japan heavily relies on imports for natural gas procurements. Prices forimported LNG generally set under a mechanism linked to the price of crudeoil. Aiming for stable and affordable LNG procurement with these given
conditions in the background, the Tokyo Gas Group has been using an
LNG procurement strategy that calls for diversified procurement sources,
flexibility in setting contract terms and conditions,and developing its LNG supply network.

1TOKYO GAS ANNUAL REPORT 2017

Anticipatory diversification toachieve stable and affordable LNG
procurement

Resourcesuppliers
for stableprocurement

Three Ways ofDiversification

212

3

Diversify contract terms andconditions

By adding contracts linked to the U.S. natural gas prices andother benchmarks, in addition to conventional crude oil
price-linked contracts, we aim to have a better balanced
portfolio of contracts and thereby to stabilize procurement
costs. We also intend to increase the number of contracts
which allow us freedom to determine shipment destinations
and other matters to enhance our flexibility.
PresentFuture

Mostly linked to crudeoil price

Linked to crude oil price
Linked to Henry Hub prices
Linked to NBP prices

Mostly long-term
contracts
Forwarding withdestination clauses(National Balancing Point)

Diversified contract periods
Destination free clauseStableprices

3

Contract terms
and conditions

LNG network

for stablepricesfor more
flexibility

123

Diversify our LNG network

By establishing an LNG network that connects the markets in
Europe, Asia, and North America, we aim to reduce costdifferentials among regions and to position ourselves toflexibly adjust demand and supply.

Present

Mainly tradebetween Japan andits export-market
countries

FutureNetwork that connects
places such as gas fields
and power plants across theglobe

Procurement from Cove Point
1

Diversify resource
suppliers

Being supplied from the LNG project originated from the shale gas source in the U.S.A.

2

Diversify contract terms
and conditions

Linked to the U.S. natural gas prices, no restrictions on destinations

3

Diversify our LNG network

LNG that Tokyo Gas procures from the U.S.
project will be exchanged with LNG Centrica
procures in the Asia Pacific region on a cargo
unit basis, toward realizing cost reduction byincreasing the efficiency of LNG transport

The tie-up between between Centrica, which isa major LNG buyer on the Atlantic market, andTokyo Gas, a major LNG business operator in thePacific market, also has objective of conducting
flexible LNG trading bridging both markets

Signed a memorandum of understanding on a strategic alliance with Centrica (UK)22

Potential toincrease

Kanto 100-200km radiusBusiness overview

2.0 billion m3

Expansion of Natural Gas Usage
through Infrastructure DevelopmentTotal

9.0 billion m

Kanto 100km radius7.0 billion m33

Kiyohara Industrial Park

Hitachi LNG
TerminalMoka Power Station(Kobelco Power Moka)(Scheduled for 2019)

Ibaraki Line

Koga-Moka Line

(Scheduled for 2020)(Scheduled for October 2017)

Saito Line
Kashima
Waterfront
Industrial Zone

Kashima
Waterfront Line
Chiba-Kashima
Line

Ohgishima LNG Terminal
Negishi LNG Terminal

Sodegaura LNG Terminal

Investment of ¥730 billion in nine years indomestic infrastructure
Under the Challenge 2020 Vision, Tokyo Gas plans to invest
around ¥730 billion, equivalent to 35% of its total investment
budget, in domestic infrastructure upgrades over the nineyear period from fiscal 2012 to fiscal 2020.
We are expanding and improving the pipeline network tosecure stable and reliable supply of our gas to users and toincrease use of natural gas. In keeping with our plan to makea high-pressure line network in the form of a loop forenhancement of supply stability and increase in transportcapacity, we are preparing to start constructing of the Ibaraki
Line, connecting the Ibaraki-Tochigi Line and the Hitachi LNG
Terminal with the Chiba-Kashima Line.

Northern Kanto, a region of significant potential
demandTokyo Gas puts particular strategic emphasis on Northern
Kanto which has strong potential demand growth for naturalgas owing to the region’s large-scale industrial zones. We
aim to expand gas sales volume from 15.0 billion m3 in fiscal
2011 to 22.0 billion m3 by advancing on two fronts: 1) further

Advantages of natural gas
Benefits of fuel conversion
Eco-friendly; no need for storage; improved operability(no clean-up); labor saving; stable supply
CO2 emission reduction by fuel conversion
Comparison of CO2 Emissions (Coal=100)
Natural gas

Oil

Coal6080100

Promoting the widespread use andexpansion of distributed energy systems

CO2 emission reduction by use of advanced(high efficiency) facilities
Gas processing facilities designed for high efficiency
require less energy for industrial heat sources and emit
less CO2
CO 2 emission reduction by conversion
from fuel oil A to natural gas

Fuel oil A
Fuel+
Conventional conversion
burners
CO2Emissions

100

Examples ofadvanced utilization
measures23

To naturalgas

75

Advancedutilization

enhancing the stability of supply through expanded supply
capacity for the development of potential demand andthe completion of the pipeline loop; and 2) promoting fuelconversion from heavy oil and kerosene as fuel to natural gas
and advanced utilization of natural gas.

Higherefficiency ofburners

45-70

Adoption of high efficiency burners; collection of
exhaust heat; improved heat insulation and reduced
heat loss at openings; improved combustible air ratio

Cogeneration systems supply electricity and heat by using
city gas as fuel. In addition to the installation of facilities at thepoint of demand, cogeneration systems help enhance energy
efficiency, reduce the amount of CO2 emissions, and improve
economic efficiency through the conservation of energy byeffectively utilizing both electricity and waste heat. Having
identified cogeneration system as a strategic product, Tokyo Gas
is promoting adoption of the residential fuel cell system ENEFARM and, for commercial and industrial customers, optimalcogeneration systems matching their demand. Since the firstunit was launched in 2009, we have added smaller, lower-priced
models of this system. As of March 2017, our ENE-FARM installedbase had risen to approximately 80,000 units.
In the commercial and industrial area, against the backdrop ofincreased demand for energy security and business continuity

GAS BUSINESSTOKYO GAS ANNUAL REPORT 2017Gas sales volume in the Kashima area surged toequal 10% of total

Wider Energy Supply Business in Northern Kanto

Area-wide Energy supply
to Kiyohara Industrial Park

As a first step toward capturing potential demand throughthe development of infrastructure, we completed the ChibaKashima Line in March 2012. Gas sales volume increased
dramatically in the Kashima Waterfront Industrial Zone toabout 10% of our consolidated gas sales volume.

We began construction of an energy center, mainlyconsisting of a 30MW-class cogeneration system,to supply electricity and heat to multiple offices(three companies and seven offices) in the Kiyohara
Industrial Park in Utsunomiya City, Tochigi Prefecture
in October 2016. The Tokyo Gas Group, to achieve
maximum efficiency in serving these customers,
will monitor the fluctuating load of each office andengage in optimally balanced operation to supplyenergy. This will be one of the largest area-wide
energy supply undertakings in an inland industrial
park in Japan. We are thus promoting widespread
use and expansion of distributed energy systems andtapping industrial demand in Northern Kanto.

Tap Northern Kanto’s potential market for gas byanother fuel conversion initiative
The Saito Line (Soka City, Saitama Prefecture–Koga City,Ibaraki Prefecture) started service in October 2015, followedby the start of service of the Hitachi LNG Terminal and theIbaraki–Tochigi Line (Hitachi City, Ibaraki Prefecture–MokaCity, Tochigi Prefecture) in March 2016. By linking with ourexisting three terminals in Tokyo Bay and our high-pressure
trunk line network, our supply infrastructure has been mademore stable. Capitalizing on our infrastructure building inNorthern Kanto, Kobelco Power Moka (an affiliate of KobeSteel) has decided to construct a gas-fueled thermal power
plant in Moka City, Tochigi Prefecture near our facility. Inaddition to the projection of an increased gas sales volume
by supplying gas to this power plant, we anticipate that it will
enable us to increase our business. In order to complete ourinfrastructure base in Northern Kanto, we have decided toconstruct an Ibaraki Line between Hitachi City and KamisuCity. This will enable us to develop further demand in theKashima area and increase use of natural gas in the Kanto
Region.

Provide energy solutions centered on natural gas to promote diversified use of natural
gas and to advance the LNG value chain.
plans, we have been promoting sales of commercial andindustrial cogeneration systems, and the scale of our cumulative
installed base of these systems has reached 2,020 MW. Aiming
at widespread adoption, we are increasing the product line-up
by offering an easy-to-install package type and a model with
reduced low maintenance costs.

Cogeneration System (Commercial, Industrial)Gas
LNG terminal

Pipeline

CogenerationElectricalenergy30-48%Heat energy(steam)30-55%

Waste heatthat isdifficult touse
15-30%
Total energy
efficiency

70-85%**Energy efficiency stated above is calculated based on certain assumptions made by Tokyo Gas.

Installation Plans for ENE-FARM (Residential) and
Cogeneration System (Commercial, Industrial)
ENE-FARM (Residential) Installation Plan (LH)
Cogeneration System (Commercial, Industrial) Installation Plan (RH)

(Thousands units)

(MW)

500

5,000400

4,000 4,000300

300 3,000

200

1,620

1,780

1,790

1,850

43.4

61.4

2015.32016.3

2,020

2,000

79.5

1,000

1,500

100
0

9.6

17.2

29.4

2012.32013.32014.302017.32021.3(Plan)

24