Challenge 2020 Vision
Overview

The Tokyo Gas Group’s Vision for Energy and the Future
Debate over the nature of Japan’s energy supply continues unabated. Against this backdrop, Tokyo Gas has long played a keyrole in the supply of energy in Japan, with a focus on the Tokyo metropolitan area. In order to address the challenges posed by
new energy issues, we put in place “Challenge 2020 Vision,” our vision for energy and the future. Recognizing the growing needto enhance energy security, reduce energy costs, and promote energy system innovation that helps to conserve energy andcurtail CO2 emissions, we will continue to hone our technologies and expertise in LNG and natural gas while working to address
the needs of each era.

Enhancing the LNG Value Chain
Increase in value added
Low prices and stableprocurement・Diversification andexpansion of upstream activities

Supply security,security enhancement

Energy solutions content
upgrading and scale expansion

Procurement and transport

Production and supply

Energy solutions

Area expansion
Expansion of the LNG
value chain fromJapan to overseas

・Overseas NaturalGas-fired thermal power
generation
・Overseas city gas supply
・Overseas engineering・Overseas energy services

Expansion of theNatural Gas value
chain fromthe Tokyo metro area
to the whole of Japan・Spread and expansion ofnatural gas use
・Engineering
・Energy services

Action Plan❶Strive to reduce raw material prices and expand overseas
operations○Diversify and expand raw materials procurement and overseas
upstream projects○Construct an overseas LNG value chain○Pursue overseas expansion of energy services and engineering❷Deliver a safe and stable supply of energy○Strengthen resistance to disaster and ensure safe supply○Upgrade and expand optimal infrastructure in step with the spreadand expansion of natural gas use❸Provide energy solutions adapted to a variety of needs○Promote the spread and expansion of distributed energy systems○Promote the spread and expansion of gas equipment that contributes to peak saving, energy conservation and CO2 emissions
reduction○Expand the electric power business (natural Gas-fired thermal
power generation)○Implement renewable energy initiatives○Promote advanced utilization of natural gas and fuel conversion○Promote the spread and expansion of natural gas use and nationwide development of energy services❹Pursue technical development and IT utilization with a focus
on the future○Engage in technical development with a focus on the future○Use IT to enable closer communication with customers❺Realize a leaner, stronger business structure○Build a “smart energy society” that uses energy wisely

Hop (FY2012-2014)

13Tokyo Gas Annual Report 2015

Step

Challenge Performance Indicators

Billion ㎥

Gas Supply Volumes by Application

1.5 times

Billion m3

25
20

15.0 billion m15

Fiscal 2011 Outlook

22.0 billion m3

3.5
3.3

3

3.5
2.7

105.23.5
1.90

3.0FY2020

2011
Reference value as of the time theVision was put in place

Residential

3.5

3.50%

Commercial

2.7

3.32%

Industrial

3.4

7.08%

Industrial(power generation use)

3.5

5.24%

Wholesale

1.9

3.05%

Total

15.0

22.04%(general use)

7.0

3.45

FY 2020（Reference value as of the timethe Vision was put in place）

Annual Average
Growth rate

■Residential ■Commercial ■Industrial (general use) ■Industrial (power generation use) ■WholesaleTokyo Gas will actively invest capital to prepare for sustained growth and has established the following performance indicators, taking into
consideration investment efficiency, financial position, and shareholder returns.
Capex・Investments and Financing・
Shareholder Returns

Use of Capital Expenditures andInvestments and Financing

FY2012 to 2020 total: approx. ¥2,480 billion

FY2012 to 2020 total: approx. ¥2,060 billion (approx. ¥230.0 billion/year)

Shareholder Returns¥420.0 billion (17%)

Business Base¥270.0 billion(13%)
CapitalExpenditures¥1,680.0 billion(68%)

Demand Development¥600.0 billion(29%)
Overseas Business¥320.0 billion (16%)¥2,240 billion¥240 billion¥2,480 billion

As of the time the Vision was put in place(Average for the period from FY2009-2011)

As of FY2020

Approx.
¥210 billion/year

Approx.
¥250 billion/year

ROE

7.3%

Approx. 8%

ROA

3.3%

Approx. 4%

D/E ratio

0.7

Approx. 0.8(each fiscal year)

60.6%

Approx. 60%

Consolidated operating
cash flow

Infrastructure¥730.0 billion(35%)

Investmentsand Financing¥380.0 billion (15%)
Consolidated operating cash flow
External debt (interest bearing debt) etc.
Capex∙Investments and Financing∙Shareholder Returns

Other investments in affiliates¥140.0 billion (7%)

Financial Performance Indicators

Reference: Capital investments andinvestments and financing in themedium-term management plan for FY
2009 to 2013: Approx. ¥180.0 billion/year

Business Structure (Consolidated Net Income Ratio by Business)

Total payout ratio

As of the time theVision was put in place

As of FY2020(Average for the period from FY2009-2011)

Tokyo Gas will grow the LNG sales, power generation, other, andoverseas businesses while expanding the domestic gas business. We
will aim to change the current 7 to 2 to 1 ratio of net income from theGas Business, LNG Sales, Electric Power Business and Others, andOverseas Business to a ratio of 2 to 1 to 1 while at the same timeincreasing the total amount of earnings.

(FY2015-2017)

Overseas Business10%
LNG Sales,
Electric PowerBusiness,
Others20%

Overseas
Business25%
Gas Business
70%

Gas Business50%

LNG Sales,
Electric PowerBusiness,
Others25%

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Tokyo Gas Annual Report 201514

Hop stage

Challenge 2020 Vision

Steady Path from Fiscal 2012 to Fiscal 2014 toward Realizing Our “Challenge 2020 Vision”

Making Inroads into the Procurement of Raw Materials andExpanding Overseas Business while Upgrading andExpanding Infrastructure Development and Energy Solutions
In its effort to realize its “Challenge 2020 Vision,” the Tokyo Gas Group has identified the three hop (FY2012-2014), step(FY2015-2017), and jump (FY2018-2020) periods. During the three-year period from fiscal 2012 to fiscal 2014, we took a positive
step forward in each of the raw materials procurement, overseas business, infrastructure development, and energy solution fields.

1 Efforts to Date
(1) Diversification and Expansion ofRaw Materials Procurement and Overseas BusinessIn line with the increase in LNG demand, the risk of rising raw materials costs is a majorconcern. Against this backdrop, the Tokyo Gas Group has worked diligently to procure
resources from and acquire interests in existing large-scale LNG projects and topurchase shale and other unconventional gas resources while taking into consideration
the balance between supply stability, price, and flexibility. Every effort was made tofurther diversity and expand supply sources as well as overseas upstream projects andto lower raw materials prices.
❶March2012 : Signed a Memorandum of Understanding withPetroVietnam Gas regarding cooperation in thedevelopment of an LNG value chain in Vietnam❷November 2012 : Entered the energy service business in BrazilFebruary 2014 : Established an energy services business company inMalaysia
2013 : Decided to participate in the U.S. Cove Point LNG❸AprilProject; contracted for the purchase of 1.4 million tons
per year of LNG❹April2013 : Joined a shale gas development joint venture in theU.S. Barnett Basin2014 : Contracted for the purchase of approximately 0.52
❺Julymillion tons per year of LNG from the U.S. Cameron
LNG Project❻September 2014 : Signed a Memorandum of Understanding with Korea
Gas Corporation regarding the optimization of LNG
inventories, joint LNG procurement, and joint
investment in upstream businesses(2) Safe and Stable Energy Supply
The Tokyo Gas Group endeavored to put in place an optimal infrastructure in step with the spread and expansion of natural gas use byconstructing the Hitachi LNG Terminal and establishing trunk line loops. At the same time, we put in place a variety of disaster prevention
countermeasures to address the risks of a wide range of contingencies including earthquakes, tsunamis and blackouts and to ensure the safe
and stable of gas through a framework that is less susceptible to damage and interruption.
❶Infrastructure Improvements to Respond to Demand Increases andBoost Supply Stability［North Kanto Area］
November 2011 : Began construction of the Saito Line (operationsscheduled to commence from October 2015)
January
2012 : Began construction of the Ibaraki-Tochigi Line
(operations scheduled to commence from March2016)
June
2012 : Completed construction of the Kashima Waterfront
Line and commenced supply to the Kashima Thermal
Power Station of Tokyo Electric Power Company
July2012 : Began construction of the Hitachi LNG Terminal(operations scheduled to commence from March2016)

Hop (FY2012-2014)15

Tokyo Gas Annual Report 2015

January

2014 : Began construction of the Koga-Moka Line
(operations scheduled to commence from March2018)［Bay Area］
November 2013 : Began use of Ohgishima LNG Terminal No. 4 LNG
Tank❷Preparedness for Earthquakes and other Disasters
June
2012 : Concluded an agreement with Shizuoka Gas Company
Ltd. and INPEX Corporation for the reciprocal backupof natural gas in an emergency
May
2014 : Subdivided the number of low-pressure pipeline blocks
into 207 blocks to minimize the areas affected bysupply failure during and after an earthquake disaster(140 blocks in 2011)

Step

(3) Energy Solutions that Meet Customer Needs
The Tokyo Gas Group released the world’s first ENE-FARM residential fuel cell system
for housing complexes. In addition to securing power sources in a bid to expand its
electric power business, the Group also worked to expand nationwide LNG sales.

❶ENE-FARM
April
2014 : Released the world’s first ENE-FARM residential fuelcell system for housing complexes❷Expansion of the Electric Power BusinessJune
2013 : Began construction of Ohgishima Power Station Unit 3(operations scheduled to commence from February
2016)
September 2014 : Signed an agreement with Kobe Steel, Ltd. for the
supply of electric power from the Shinko Moka Power
Plant (supply scheduled to commence from fiscal
2019)
March
2015 : Reached an agreement with Idemitsu Kosan Co., Ltd.
and Kyushu Electric Power Company Inc. to consider
the joint development of a coal-fired power plant; May
2015: Established Chiba-Sodegaura Energy Co., Ltd.

(FY2015-2017)❸Nationwide Development of LNG SupplyOctober
2012 : Began LNG supply to Hokkaido Gas Co., Ltd. via
ocean liners
September 2014 : Began construction of the Onahama Satellite Terminal
with a view to supply that meets industrial demand inIwaki City, Fukushima Prefecture (supply scheduled tobegin from January 2016)
October
2014 : Commenced supply of LNG to Saibu Gas Co., Ltd.

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Tokyo Gas Annual Report 201516

Step stage

Challenge 2020 Vision

Main Policies for FY2015-2017 toward Realizing “Challenge 2020 Vision”

Evolve the Total Energy Business andAccelerate Global Business Development
The Tokyo Gas Group has moved smoothly throughout the hop period in its efforts to realize its “Challenge 2020 Vision.” The
Group is now poised to enter the step period from fiscal 2015 and to lay the groundwork by advancing a variety of measures.
Here we provide details of our three main policies for the step period: “evolving the total energy business,” “accelerating global
business development,” and “constructing a new group formation.”

2 Main Policies from Fiscal 2015 to Fiscal 2017
(1) Evolve the Total Energy BusinessIn order to evolve the total energy business, the Tokyo Gas Group will work to further
diversify the procurement of raw materials and upgrade and expand infrastructure instep with the spread and expansion of natural gas use. At the same time, the Groupwill expand electric power sales, bolster competitive generation capacity, and provide
optimal energy solutions that combine gas, electricity, and value added while ensuring
safe and stable supply.
❶Further Diversify Raw Materials Procurement
Further advance diversification of procurement sources, price indices and destinations, and flexibly
form alliances not only with domestic companies but also with Korea Gas Corporation and otherdiverse foreign players, depending on the contract conditions and trading timing, for joint
procurement, optimization, and sales of LNG.

❷Upgrade and Expand Infrastructure in order to Spread and Expand the use ofNatural Gas
The Tokyo Gas Group will look to construct the Hitachi LNG Terminal LNG Storage Tank No. 2 aswell as Ibaraki Trunk Line with a view to completion by 2020. Steps will also be taken to pursue theconstruction of the Hitachi-Onahama Line by the 2020s. For this purpose, we will advance moredetailed studies on various aspects of the undertaking including demand trends and routeselection. In addition, operations will commence at the Hitachi LNG Terminal, Ibaraki-Tochigi Line,pipeline for the Mito area, and the Saito Line as a part of efforts to address natural gas demand in
the northern Kanto area focusing mainly on Ibaraki and Tochigi prefectures.

❸Ensure Safe and Stable Supply

The Tokyo Gas Group will aim to ensure zero major accidents and realize an earthquake resistanceratio of 90% by the mid-2020s by accelerating measures for aged gas pipes and carrying out
other initiatives.

Hop (FY2012-2014)

17Tokyo Gas Annual Report 2015Step❹Expand Electric Power SalesBillion kWh

With the complete liberalization of retail electric power in 2016, the Tokyo Gas

40Group will deliver electricity to residential and commercial customers and expand

30sales to around 30 billion kWh (about 10% of Tokyo metropolitan area demand)by 2020 in addition to servicing the needs of existing wholesale and large-lot

20customers.

10❺Increase Competitive Generation Capacity

0Electric Power Sales Volumes
An increase of approx.
20 billion kWh
About 30 billion kWh
About 10 billion kWh2013

The Tokyo Gas Group will expand generation capacity from the present level of2020

FY

approximately 1.3 million kW (company equity) to around 3.0 million kW by 2020.

❻Provide Optimal Energy Solutions by Combining Gas, Electricity, andMillion kWValue Added

4.0

The Tokyo Gas Group will deliver the best mix of gas and electricity services. Every

3.0

effort will be made to boost and create value added through partnerships between

2.0

the Tokyo Gas Group and companies in diverse industries such as housing,

1.0

construction, facilities, communications, and information services. We will also0push forward smart energy trends and advance finely tuned energy solutions

Generation Capacity
An increase of approx.
1.7 million kW

About 3.0 million kW
About 1.3 million kW
2013

2020

FY

utilizing feedback from customers.

(2)Accelerate Global Business Development
The Tokyo Gas Group will expand and diversify upstream businesses whileat the same time specifying regions and focusing on midstream anddownstream businesses. Moreover, we will upgrade and expand overseas
bases in order to strengthen our overseas operations.

❶Develop Upstream Businesses
The Tokyo Gas Group will acquire interests in gas fields inNorth America and elsewhere without procurement,participate in small and medium-scale LNG projects, andotherwise work toward the diversification of participation【Overseas base / staff】

formats aimed at further expansion.

❷Develop Midstream and Downstream Businesses＜Base in Europe＞
Paris: 3

The Tokyo Gas Group will harness its technologies andknow-how to intensively develop businesses in specific＜Base in North America＞
Houston : 19
＜Bases in Asia＞
Singapore : 8
Jakarta : 4
Hanoi: 2
Bangkok : 2
Kuala Lumpur : 2
As of April 2015

(FY2015-2017)

areas of Southeast Asia and North America.
❸Upgrade Overseas Base Functions

The Tokyo Gas Group will build local networks inSingapore, Jakarta, Hanoi, and Bangkok. The Group will
also put together projects that make the most of theGroup’s comprehensive strengths and promotecommercial business opportunities. Moreover, we will

＜Bases in Australia＞
Perth,other : 26

increase the number of business development personnel
to around 200 (compared with the present number ofapproximately 100) over the next three years, andotherwise examine upgrading overseas base functions.

Jump (FY2018-2020)

Tokyo Gas Annual Report 201518

Step stage

Challenge 2020 Vision

Main Policies for FY2015-2017 toward Realizing “Challenge 2020 Vision”

Evolve the Total Energy Business andAccelerate Global Business Development
The Tokyo Gas Group has positioned efforts to construct a new Group formation as one of its main policies during the step
period. Moving forward, we will work to lay a foundation for the jump period from fiscal 2018 to fiscal 2020 during which we willrealize our “Challenge 2020 Vision”(3)Construct a new Group formation
In order to “evolve the total energy business,” we will further expand the electric power business while fostering and strengthening businesses
that help realize added value. In addition to fostering businesses that have the potential to become pillars of Group revenues through theselection and concentration of businesses, we will construct a new Group formation to accelerate global development.
❶Organizational Systems and Structure
The Tokyo Gas Group will work to gain a consensus regarding the selection and concentration of businesses. In addition to promoting specific measures
including the reorganization and consolidation of subsidiaries and affiliates, we will put in place and carry out appropriate growth strategies.

❷Management Systems

The Tokyo Gas Group will introduce personnel programs that cover the entire Group as well as operating and management systems that help to accelerate thepace at which it a dedicated organizational structure is established, take full use of diverse human resources, and foster businesses that have the potential to
become earnings pillars.

❸Address the Shift to Full Gas Deregulation
In the lead-up to full gas deregulation, the Tokyo Gas Group is putting in place a dedicated organizational structure and reviewing its operating and IT systems tosecure a finely tuned framework that is capable of addresses gas system reform. Every effort is also being made to generate added value by utilizing data. Inaddition, the Group will work to secure fairness and transparency in the use of pipelines while increasing convenience by ensuring the proper application of its
dedicated organization.

Milestones in the Lead-Up to Realizing“Challenge 2020 Vision”
Core Businesses

Gas Businessp 21

Overseas BusinessCurrent statusp 31

Electric Power Businessp 27

Current efforts to realizing“Challenge 2020 Vision” ▶ P.20

Destination on realizing“Challenge 2020 Vision”

Jump stage

Other Initiatives
p 35

Step stage
Hop stage

As of FY2020

As of the time the Vision was put in place

Overseas Business
Gas Business
25%
50%(Average for the period from FY2009-2011)

Overseas Business
10%

Putting “Challenge
2020 Vision” in place

LNG Sales,
ElectricPower Business,
Others20%

2011.112012.3Hop (FY2012-2014)

19

Tokyo Gas Annual Report 2015

LNG Sales,
Electric Power Business,
Others25%

Gas Business70%

2015.32018.3

Step (FY2015-2017)2021.3

Jump (FY2018-2020)