Our Gas Value Chain
There have been significant changes in the environment in which Tokyo Gas operates,
including deregulation of the gas and electric power sectors, shifts in demand patterns, andgrowing public concern about corporate social responsibility. At the same time, customer
needs have become increasingly diverse and sophisticated. We have been adapting to thisenvironment through initiatives based on our medium-term plans. Under the plan that started
in 2000, we worked to develop Tokyo Gas as a new kind of utility company, while our goal
under the plan started in 2003 was evolution as an energy frontier business group. In April
2006, we launched a medium-term management plan covering the period from fiscal 2006 to
fiscal 2010. This plan reflects our vision for Tokyo Gas in the decade after 2010. We aim toincrease our presence in the LNG value chain, which encompasses all stages from upstream
to downstream, and we will focus on the development of energy services based on our abilities as a multi-energy supplier including gas and power. We also intend to tap the enormous
latent demand in the Kanto region by expanding our integrated energy business within a 200
km radius from Tokyo.

Our
Mid-term Plan

Value Chain

Storage andSupplyProcurement

Creation and Cultivation of
new natural gas market

Business Partner
Solutions

Residential
Customers

R&D

Business Strategy

2006

Medium-term management
plan (FY2000–2004)“New Utility Company”

Medium-term management
plan (FY2003–2007)“Energy Frontier
Corporate Group”

Medium-term management
plan (FY2006–2010)“Creation and Cultivation of
New Natural Gas Markets”

Greater Potential Value to Customers

2002

Optimal one-stop multi-energy solutions including city gas,
LNG, LPG and electricity

1999

Broad-based profit
structure built throughthe creation andcultivation of newmarkets for natural gas

Current profit
structure

Service Area Expansion
Marketing scheme covering 200 km radius around Tokyo in the Kanto region,and creation of wide-area infrastructure

1213Energy Progress, one of the carriers in the Tokyo Gas Fleet, loads
LNG from the Darwin project in Australia.

LNG—A Precious Natural Resource
Liquefied natural gas (LNG) is produced by transforming natural gas from its natural gaseous state into aliquid by lowering its temperature to around minus 160ºC. This precious natural resource is brought toJapan across thousands of kilometers of ocean aboard specially designed carriers. Tokyo Gas firstimported LNG from Alaska in 1969. In the four decades since then, we have made this environmentallyfriendly fuel the core of our business operations.
LNG is a environmentally superior to other fossil fuels. Unlike crude oil, which is found only in limitedareas, such as the Middle East, LNG can be sourced from many locations. Another important advantage
is the ability of natural gas to be used with increasing efficiency because of advances in utilization technologies, such as fuel cells and cogeneration systems. These and other advantages are reflected in consistently high levels of customer satisfaction.

Reliable, Competitive Access to ResourcesTokyo Gas is continually working to maintain reliable and competitive access to LNG sources by expanding its LNG value chain through the effective linkage of its business activities—from upstream operations
and transportation to the operation of import facilities and gas supply systems. This includes overseas
activities, and we are implementing the following policies to achieve this goal.
First, we enhance the reliability and competitiveness of our LNG procurement by diversifying our
supply sources. In 2008, Russia will become our seventh source country when we begin to procure LNG
from the Sakhalin Ⅱ project. From 2010 onwards we will also source LNG from the Gorgon and Pluto
Projects in Western Australia.

Procurement

In recent years we have strengthened our competitiveness by enhancing our ability to adjust to fluc-Tokyo Gas is the largest importer of LNG among city gas distributors in Japan, which buys around 40% of world
LNG supplies. Currently we source a total of 10 million tons of LNG from 10 projects in six countries, including
locations in Southeast Asia,
Australia, the United States
and the Middle East. We are determined to secure our ability to supply our customers with high-quality naturalgas. To achieve this goal, we plan to ensure reliable and competitive access to resources by enhancing our presence in the LNG value chain through participation in upstream development and transportation.

Capturing Upstream Value

tuations in customer demand. We have achieved this by negotiating contracts that provide increased
flexibility. For example, with some of our projects we are now able to adjust volumes or change the destinations to which LNG is shipped.
Second, we are already involved in the Darwin Project in Australia, and currently we are negotiating overparticipation in the Pluto and Gorgon Projects, which are also in Australia. In addition to reducing LNG pricefluctuation risk and ensuring business profits, another advantage of this involvement in upstream interests isthe potential to develop new business opportunities, including trading operations. Furthermore, we aim toestablish an LNG value chain through involvement in LNG receiving terminal and gas supply business.
Third, we currently operate a fleet of five vessels, including Energy Progress, which went into service inNovember 2006. We plan to expand our fleet to seven vessels by fiscal 2010, by which time we will carryapproximately 50% of our total LNG cargos in our own vessels. By increasing the volumes carried, we aim
to achieve further reductions in our transportation costs. The use of our fleet for short-term and spot procurement as well as procurement under long-term contracts will provide increased flexibility, thereby helping to reduce gas resource costs and improve reliability. We also intend to expand the scope of our business activities by carrying LNG for the third parties or chartering out our vessels.
Tokyo Gas LNG Long-term Imports
AlaskaSakhalinTokyo
New LNG ProjectExisiting LNG Project

Qatar
BruneiMalaysia
Indonesia
Pluto
GorgonDarwinNWS

14

15

Now operated jointly with Tokyo Electric Power Company, the Negishi Terminal was
opened in November 1969 as Japan’s first LNG terminal.

Exploiting the Full Potential of Supply Infrastructure
Tokyo Gas imports LNG from various parts of the world through its Negishi, Sodegaura and Ohgishima
Terminals in the Tokyo Bay area. To maximize shipping efficiency, the gas is cryogenically liquefied at the
point of production to reduce its volume about 600 times. On arrival in Japan LNG is transferred to storage tanks, a process that takes approximately half a day. LNG is regasified by passing it through aluminum tubes that are exposed to seawater. LPG is added to adjust the caloric value, and finally odorized,
so that customers will be aware of the presence of the gas. It is then sent out through pipelines.
Two of our three terminals, the Negishi and Sodegaura facilities, are jointly operated with Tokyo ElectricPower Company. The benefits of this arrangement include reduced capital investment and operating costs,
and higher operating rates made possible by load leveling based on differences between peak demand patterns for power and gas. These advantages are reflected in lower gas production costs.
Computerized central control systems allow efficient operation of the terminals by a small team, andday-to-day operations require only 5–10 workers. Safety is of paramount importance. Most of the LNG
tanks, which hold up to 200,000 kiloliters, are located underground. This increases their ability to withstand earthquakes, and even if a tank is damaged the risk of above-ground LNG leaks can be minimized.

Expansion across a 200 km Radius around Tokyo—The Kanto Region
In the medium-term management plan for fiscal 2006–2010, the Tokyo Gas Group announced that it
would expand its pipeline network in the Kanto region across a radius of 200 km from Tokyo. This
expansion will enhance supply reliability and allow us to develop the enormous potential demand that

Storage and Supply

exists in the region.

The three LNG receiving terminals operated by Tokyo Gas in the Tokyo Bay area are the biggest in Japan. LNG
is transported across the world by carriers to these facilities, where it is processed into city gas. The gas is thensupplied safely to customers through a pipeline network covering a total distance of 50,000 km—more than thecircumference of the Earth. Our supply infrastructure in
the Kanto region, including LNG receiving terminals,
pipelines and regulators, serves a market that produces around 40% of Japan’s GDP. Our success depends on
our ability to make effective use of this infrastructure, and we actively invest in the development of our pipeline
network as part of our strategy to capture new demand. We plan to expand our network in the Kanto region
across a 200 km radius from Tokyo. Tokyo Gas continues to accept the challenge of sustainable growth.

Moving Outward

Expansion work was already in progress before the announcement of the plan. In November 2005
we completed the 69-km “Tochigi Line” linking Sano and Utsunomiya across the northern part of the
Kanto region and commenced natural gas sales to large-volume customers in the area. This pipeline wasconstructed to meet the needs of customers, especially in local industrial estates, and to provide
enhanced reliability of supply. Its contribution to demand development has exceeded our initial target,
and to date we have been able to secure approximately 300 million m3 of new demand.
We have also decided to build the new “Chiba–Kashima Line” to capture energy demand at industrial
complexes in Ibaraki Prefecture. When completed in 2010, this 73-km pipeline is expected to attract
approximately 500 million m3 of new demand.
Tokyo Gas uses a variety of methods to supply natural gas to customers in locations that are remote fromour pipelines. The Sodegaura and Negishi Terminals also serve as loading depots for tanker trucks, which forma mobile link in our infrastructure for day-to-day gas sales in the Kanto region across a 200-km radius from
Tokyo. Coastal carriers are used to supply natural gas to customers in more remote locations. This flexibility
and mobility allow us to provide optimized energy solutions that meet the needs of our customers.
Tokyo Gas Group Supply Area
Tochigi

Gunma“Tochigi–Line”

IbarakiNaganoSaitama“Chiba–Kashima Line”

Yamanashi

Tokyo■ Tokyo Gas Group Service Area
■ Service Areas of Wholesale Customers

Kanagawa
Chiba
Shizuoka

16

Tokyo Gas High-Pressure Pipelines
High-Pressure Pipelines of Other Companies
Tokyo Gas Pipelines Under Construction
Pipeline jointly owned with Shizuoka Gas andTeikoku Oil Co., Ltd.
● Tokyo Gas LNG Receiving Terminal

17

The Tokyo Gas Baypower plant (100 MW) is locatedalongside the Sodegaura LNG Terminal.

Sophisticated Energy Solutions
There is escalating competition among different types of energy, and among suppliers of the same typeof energy. However, Tokyo Gas has maintained an overwhelming advantage backed by decades of accumulated experience and knowledge. Our city gas network is the core infrastructure through which we
respond to the changing and increasingly sophisticated energy needs of industrial and commercial customers. As a multi-energy supplier and provider of energy services, we offer one-stop access to city gas,
LPG, electric power and other forms of energy. We will continue to provide advanced energy solutions
that surpass the expectations of our customers.
Our power business is one of the core elements in the multi-energy supply structure, through which
Tokyo Gas provides its customers with one-stop solutions to their energy needs. Our aim is to supply
the optimal mix of facilities, including cogeneration systems. We are able to supply electric power competitively by combining a range of strategies, including the construction of power plants close to demandareas, the use of existing infrastructure at LNG terminals and other facilities, and the introduction ofAdvanced Combined Cycle (ACC) technology. There are also important synergy benefits between ourelectric power and gas operations, including higher utilization rates for LNG terminals. Tokyo Gas and its
allied companies currently have 2,340 MW of generating capacity at four sites, either already in operation
or at the construction or planning stages.

Integrated Utility Services for Diversified Needs
We are expanding our collaboration with ENERGY ADVANCE Co., Ltd. (ENAC), which was separated

Business Partner Solutions
Buoyant business performance has driven a surge in the development of new production facilities in theTokyo metropolitan area. There has also been an accelerating shift to natural gas, both as a means of reducing CO2 emissions, and also because of aprice advantage relative to persistently
high crude oil prices. Despite escalating competition in the energy market, Tokyo Gas has built an overwhelming advantage on a foundation of engineering expertise. As a reliable business partner in all segmentsof the energy market, we will continue to work with our customers to create new value.

Greater Energy Choicefrom Tokyo Gas as an independent company in 2002. This relationship is crucial to the full-scale development of our multi-energy supply business.
The knowledge and technical expertise accumulated through construction and operation of thesefacilities are the foundation for a wide range of energy services. ENAC’s professional engineers select,design and install systems that precisely match customer needs, providing benefits that include energy
conservation and reduced CO2 emissions and costs. With a cumulative total of 175 orders by the end of
March 2007, ENAC is the industry leader.
The services provided by ENAC are not limited to energy. It is evolving into an integrated utility service company offering one-stop solutions for a wide range of customer needs, including utility services,such as the supply of pure water and compressed air, and contracting services in such areas as biomass
utilization and facility operation and management.

Building Markets for Integrated Energy Solutions
Businesses are establishing an increasing number of factories and large-scale commercial facilities on theoutskirts of Tokyo. Our strategies for the development of potential demand in the Kanto area aroundTokyo include the development of wide-area pipeline networks and construction of LNG satellite terminals
in areas where gas pipelines have not been installed. We see the Kanto area within a 200-km radius ofTokyo as a single market for natural gas, and we believe that we can achieve further demand growth bystrengthening our alliances with local energy suppliers, and by offering one-stop service packages that
include LNG sales and other energy services, such as power and heat.
Cogeneration Stock (MW)
2,000

1,500

1,000

500

0
Year ended ’98
March 31’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12
Industrial Use
Commercial Use

18

Estimated

19

Tokyo Gas offers a variety of lifestyle ideas to enhance and enrich
today’s increasingly diverse home environments.

Maximizing the Value of Customer Contacts
In the residential sector, Tokyo Gas aims to maintain and expand gas sales volumes per customer
through in-depth marketing. All Tokyo Gas companies have numerous opportunities for customer contacts, and we are determined to maximize these opportunities. We also work to expand our gas sales
volumes through dynamic marketing activities targeted toward expansion of our customer base.
In recent years, it has become increasingly difficult to prevent declines in gas sales per customer
because of structural factors, including Japan’s falling birthrate, and an increase in the number of houses
with effective draft-proofing and thermal insulation. There is also escalating competition from all-electrichouses, a concept that is being promoted primarily by electric power companies.
Our strategy in this market environment is to maintain and expand gas sales in the residential sector
by offering enhanced lifestyle features and comfort to as many customers as possible. We will achieve
this by strategically introducing attractive gas appliances that anticipate changing lifestyles, such as floorheating systems and mist saunas. We are also encouraging customers to use these appliances by developing and promoting an attractive range of gas charging options.
We are promoting these strategic appliances aggressively. In addition to the use of mass-advertising
media, such as television, newspapers, magazines and the Internet, we are also creating opportunities
for consumers to experience the advantages of gas at our showrooms, and through outside events andcondominium and housing displays.
In addition to aggressive product development and marketing strategies, we also work to strengthen
our marketing organization in each market segment. In April 2007, we created the Residential Sales

Residential Customers

Promotion Division, which is responsible primarily for end-user services and marketing through regionally

The mission of Tokyo Gas is to help residential customers experience the lifestyle enhancements made possibleby city gas, including the enjoyment of delicious food cooked over real flames, and the convenience of being
able to produce just the required amount of
hot water whenever it is needed. We offer ourcustomers new value by developing products and services that reflect their needs, including environmental
and health needs. We are also determined to enhance our ability to communicate with customers by building
a marketing structure based on the development of even stronger links with regional communities.

Development Division, which markets our products and services primarily to sub-users.

focused marketing approaches coordinated by five branch offices. We also established the Housing

One Stop for Service

We will soon commence full-scale preparations for the implementation of the new regional energy
company concept as the next stage in the evolution of our regionally based marketing organization. Thischange will involve the restructuring and integration of sales and service functions, including appliancesales, repair services and safety inspections, in order to provide one-stop access to products and services with the potential to add value to customer lifestyles.
The aim of these initiatives is to create a framework for sustainable growth in the residential gas market by strengthening the integrated marketing potential of the Tokyo Gas Group, and by providing onestop access to products and services needed by our customers.

Capturing Residential Electric Power Demand—Home Power Generation
Tokyo Gas promotes home power generation systems as a way of expanding residential gas demandand countering competition from all-electric systems. Our flagship products in this area, the ECOWILL
gas engine cogeneration system and the LIFUEL fuel cell cogeneration system, are being marketed primarily to customers living in detached houses.
We use home power generation to develop a new residential electric power market. These strategic
products have the potential to drive future growth in gas sales. Until now, we marketed these systems
mainly for new houses, but in early fiscal 2007, we
expanded the scope of the market by launching a

Flow of residential cogeneration system

major effort focusing on installation in existing houses. By fiscal 2010, we aim to sell a cumulative total
Electricity

of approximately 43,000 units as a foundation forlarge-scale adoption of this technology.
Tokyo Gas is studying strategies for entry into themarket for energy systems for condominium hous-

Lighting

Electric
appliances

ShowerFloor heatinging. In this area, we will provide one-stop solutions,the energy needs of condominium residents.

20

Heat

Hot water/Space heating

nance of cogeneration systems designed to meet

City
gas

Power
generation

including the installation, ownership and mainte-

Hot
water

Space heating

21

The pilot biomass gasification plant is located at the Nakagawa Water
Recycling Center in Misato city, Saitama Prefecture.

R&D Focusing on both Strategy and Platform
Our research and development activities are broadly divided into strategic technology development that
contributes to the development of an integrated energy business centering on natural gas, and platform
technology development that helps to enhance our competitiveness while also ensuring that we canmeet society’s needs in terms of reliability, safety and environmental considerations.
Our strategic technology development has two major goals. First, we aim to diversify and improve
the performance of our products, including mist saunas and floor-heating systems, so that residential
customers can enjoy the full benefits of gas. Second, we work to develop new technologies to drive
sustainable growth in the future.
One of the goals of our platform technology development is to improve the technologies used tobuild, and maintain our natural gas infrastructure, especially our pipeline network, so that we can safely
deliver natural gas and ensure that it is safely used by our customers. Another focus is the developmentof technology to improve our competitiveness by reducing costs. Our platform activities also play a crucial role in increasing depth and passing on our platform technologies, including gas quality management
and combustion engineering.

Creating the Energy of the Future
Tokyo Gas has made the development of technologies for the energy society of the future a priority
theme for its technology development activities. We are developing a variety of highly efficient equipment with major energy-saving benefits. One of these is the LIFUEL home power generation system,
which is now at the performance verification stage. Another is the Solid Oxide Fuel Cell (SOFC), a next-

Technology Research and Development
Tokyo Gas places a high value on technology and accepts the challenge of creating new technology as thedriving force for business development and growth. Particularly important are technologies relating to the gas
business, such as combustion technology and pipeline technology. Asa leading company in the Japanese energy sector, we aim to achieve sustainable growth in partnership withsociety by actively contributing to the development of new technologies for the energy society of the future.

Making Our Own Future

generation fuel cell system capable of generating electricity with high efficiency.
We are also developing technology for the use of biomass as a renewable energy resource capable ofmaking a major contribution to the reduction of CO2 emissions. A feature of our biomass power generation
technology is the use of mixtures of biogas and city gas. This approach allows us to stabilize seasonal andtime variations in the output and caloric value of biogas so that cogeneration facilities can be operated continuously. We will market this technology to industrial and public sector customers, such as sewage treatment and waste processing plants.
Our technology development goals also include the development of holonic energy systems. By
effectively combining highly efficient devices and renewable energy resources, these systems allow
major reductions in energy consumption and CO2 emissions while also improving supply stability. In
June 2006 we built a pilot facility at the Yokohama Research Center and commenced testing. The facility
is designed to provide optimized control by combining various distributed power sources and grid power.
Technology Development Strategies
Strategic Technology
Platform Technology
Business infrastructure
Production

PEFC
Commercial(Polymer Electrolyte Fueluel Cell)equipment,Home
industrial
equipment, appliances andnew services new services

SOFC

Pipelines(Solid Oxide Fuel Cell)

Cogeneration systems/
systems
air conditioners

Natural gas vehicles
Na

Holonic Energy System

HydrogenHydrogGreenn energyener

New usage ofnatural gas

Gas meter
Understanding customers, disseminating lifestyle culture
Helping to create future visions through the exploration of new technologies

Technology infrastructure
Platform technology

22

Actuarial assumption

Energy information

23