TOKYO GAS ANNUAL REPORT 2018

Business overview

Gas businessNet sales and Operating Profit(¥ billion)

2,000

Net sales (LH)(¥ billion)

Operating profit (RH)200

1,500150

1,000100

500

5000
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Gas Sales Volume and Number of Customers(billion m3 )20

Sales volume (LH)

Number of customers (RH)

(million)

20

1515

1010

5500
2013.3 2014.3

2015.3 2016.3

2017.32018.3 2019.3(Planned)

Factors affecting revenues and expenses

P59

Case Study (Materials Procurement)

Cove Point LNG ProjectCity Gas and LNG sales
OutlineApplications of gas from the Tokyo Gas Group span a wide
range, from household cooking, heating, and hot water, tocommercial air conditioning, industrial use, power generation,and other uses. The Tokyo Gas Group has also extended its
coverage from the Kanto region encompassing Tokyo and its
adjacent three prefectures (Kanagawa, Chiba, and Saitama) to
North Kanto (Ibaraki and Tochigi), by lengthening its pipeline
network to serve more customers and cater to more demand.
Number of customers

Gas sales volume

Segment profits

11,678 thousand15.57 billion m¥116.6 billion

FY2017FY2017Equivalent to approximately
45% of total nationwide
gas sales volume in Japan

FY2017

3Strengths
Customer base of over 11 million customers and the trust
relationship with customers who have close ties with local
communities
Delivery of safety and reliability to customers for many years
The Kanto region centered around Tokyo, with its highconcentration of production and consumption, as our primarysales area (the Kanto region accounts for around 40% ofJapan’s total GDP)
Safety-related know-how and energy solution technologycapabilities

Risks
Difficulties in raw materials procurement due to the impact ofgeopolitical risks, etc., with regard to raw materials imports
Supply issues due to damage to production and supply
facilities stemming from a large-scale disasterIntensified competition driven by market deregulation;
decline in demand caused by changing lifestyle

21

In May 2018, Tokyo Gas began receiving its first shipmentsof LNG in Negishi LNG Terminal from the Cove Point LNG
Project, our first project procuring LNG from a gas-rich shale
source in the United States.
Based on the memorandum of understanding on a strategic
alliance signed with Centrica (Centrica LNG Company Limited,a subsidiary of leading UK-based energy and services
company Centrica plc) — one of the UK’s leading energy
companies—in November 2016, Tokyo Gas will aim to create aframework to exchange its LNG with LNG procured by Centrica
in the Asia-Pacific region, and enable cost reductions byimproving efficiency in the transportation of LNG.
Project Benefits

1

Diversify resource suppliers

2

Diversify contract terms and conditions

3

Diversify our LNG network

The Cove Point project is our first project to procure LNG from agas-rich shale source in the United States
Linked to the U.S. natural gas prices, no restrictions on shipping
destinations
We are developing an LNG value chain linking Asia, North
America and Europe (aiming to achieve the concrete realization of
the memorandum of understanding on a strategic alliance signedwith Centrica (UK))

Introduction

Japan relies heavily on imports for procuring natural gas. LNG import prices are generally determined by a mechanism linked to the price of crude oil.
With the aim of achieving stable and affordable LNG procurement under these conditions, the Tokyo Gas Group is driving three types ofdiversification: diversification of resource suppliers (procurement sources), diversification of contract terms and conditions, and diversification of its
LNG network.
Diversification 1

Resource suppliers (procurement sources)
New LNG Project
Existing LNG Project

Sakhalin
Tokyo■

Qatar

Brunei

GPS2020

Malaysia
Mozambique

Pluto
GorgonDarwin2017

712

projects

projects

2018

Queensland Curtis

Ichthys14

projects

Diversification 2

Contract terms and conditions

ConventionallyIn the future

Diversification of price indexes
Diversified contract periods, destination free clauseStable prices

Diversification 3Future

By establishing an LNG network that connects the markets inAsia, North America and Europe, we aim to improve LNG
transportation efficiency, reduce cost differentials in market
prices among regions, and increase our flexibility; which willcontribute to making supply and demand adjustments.

Mainly trade between Japan andits export-market countries

Network connecting Asian, North
American and European markets

MessageNobuyuki Fujimori

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

Further diversification of our LNG network beginning with the Cove Point ProjectIn May 2018, Tokyo Gas began receiving shipments of LNG produced at Cove Point, Maryland, United States.
During fiscal 2018, Tokyo Gas plans to begin procuring LNG from the Ichthys Project in Australia, and has also reached abasic agreement on joint procurements with Centrica (UK) in Mozambique, Africa. With the inclusion of these and various
other projects, Tokyo Gas is advancing the diversification of its procurement sources.
In addition, by driving three types of diversification in procurement, such as in its initiative to exchange LNG in cargo-unit
volumes based on the memorandum of understanding on a strategic alliance signed with Centrica, Tokyo Gas is accelerating
the construction of an LNG network connecting Japan to the rest of the world.

Financial data

Sustainable Development Goals

Invisible assets

Materials Department
Trading Group

With the full deregulation of the electric power and gas markets, uncertainty withregard to demand for city gas is increasing, and there is a growing need for more
flexible handling of demand fluctuations and more competitive LNG procurement.
In order to tackle issues such as these, Tokyo Gas is expanding the scale of its
LNG trading activities.
As a concrete example, we are engaged in initiatives to increase options for making
flexible adjustments to supply and demand, such as by aiming to reduce raw materialcosts (such as by reducing shipping distances and Panama Canal transit tolls) byexchanging cargo-unit volumes of LNG procured by Tokyo Gas in the United Stateswith LNG procured by the Centrica Group (UK) in the Asia-Pacific Region.
Moving forward, we will aim to further improve our competitiveness and flexibility bycontinuing to increase trading with alliance partners both in Japan and overseas.

Corporate governance

PresentLNG Network

Business overview

By adding contracts linked to US natural gas prices and otherbenchmark indicators, in addition to conventional crude oil
price-linked contracts, we aim to stabilize our procurement
costs. We also plan to increase the number of contracts withno restrictions on shipping destinations and other matters,
and increase our ratio of short-term “spot” procurements, inorder to enhance our flexibility.

Linked to crude oil prices, long-term contract periods,
restrictions on shipping destinations

Overall image afterfull deregulation

2002

Cove Point

Cameron

NWS
Number of LNG
procurement
projects

Message

In addition to its conventional procurement sources inSoutheast Asia, Australia, and Sakhalin (Russia), Tokyo Gas
has also begun receiving LNG from the Cove Point LNG
Project in the United States. Upon commencing receipt ofLNG from the Ichthys Project in Australia (scheduled tocommence during fiscal 2018), the Group will have increased
its number of LNG suppliers to 14 projects in 6 countries. We
have also reached a basic agreement on joint procurementswith Centrica (UK) in Mozambique, Africa.
Through efforts such as these, we are working continuously
to enhance the stability of our LNG supply, by considering
LNG procurement from a wide range of areas and regions.

22

TOKYO GAS ANNUAL REPORT 2018

Business overview

Expansion of Natural Gas Usage
through Infrastructure Development

Gas business

Plans to invest ¥500 billion in gas business over athree-year period (FY2018-2020)
Kanto 100-200km radius
3

Potential toincrease

Kanto 100km radius

9.0 billion m

2.0 billion m
7.0 billion mTotal

33

Kiyohara Industrial Park
Moka Power Station(Scheduled for FY2019 onwards)

Hitachi LNGTerminal
Ibaraki–Tochigi Line
Ibaraki Line

Koga-Moka Line

(Scheduled for FY2020)

Significant potential demand in the Northern

Saito Line
Kashima
Waterfront
Industrial Zone

Kawasaki Natural Gas Power
Generation Co., Ltd.
Ohgishima Power Co., Ltd.
Ohgishima LNG Terminal

Kashima
Waterfront Line
Chiba-Kashima
Line

Negishi LNG Terminal
Tokyo Gas Yokosuka
Power Co., Ltd.

Under the GPS2020 management plan, Over a period of threeyears (FY2018-2020), Tokyo Gas plans to invest ¥500 billion,
equivalent to approximately half of the total amount ofinvestments for the overall plan, to enable the safe and stabledelivery of city gas to customers.
In addition to investments for security, stable supply, andpromotion and expansion of city gas usage (maintenance andimprovement of pipeline facilities, etc.), we will also carry out
large-scale improvements to equipment and facilities,
including the completion of the Ibaraki Line, expansion of theHitachi LNG Terminal, and the construction of a customer
information management system.

Tokyo Gas Baypower Co., Ltd.
Sodegaura LNG Terminal

Promoting the widespread use and expansion of
distributed energy systems
Cogeneration systems supply electricity and heat by using
city gas as fuel. In addition to the installation of facilities atthe point of demand, cogeneration systems help enhanceenergy efficiency, reduce the amount of CO2 emissions, andimprove economic efficiency through the conservation ofenergy by effectively utilizing both electricity and waste heat.
Having identified cogeneration system as a strategicproduct, Tokyo Gas is promoting adoption of the residential
fuel cell system ENE-FARM and, for commercial andindustrial customers, optimal cogeneration systems
matching their demand.

Kanto areaTokyo Gas puts particular strategic emphasis on the Northern
Kanto area, which has strong potential demand for natural
gas owing to its numerous large-scale industrial districts. We
aim to expand gas sales volume from 19.1 billion m3 in fiscal
2017 (forecast at the time of formulation of GPS2020) to 20.7
billion m3 by promoting and expanding the widespread use ofnatural gas by extending the length of our pipeline networkand lorry supply; and providing energy solutions including
energy conservation, CO2 reductions and cost reductions via
the use of natural gas and gas appliances.

Installation Results (March 2018)
ENE-FARM

Cogeneration System

Reached 100,000 units incumulative sales of ENEFARM(equivalent to the capacity of about 2nuclear power stations)2.07 million kW

Cogeneration System (Commercial, Industrial)Gas
LNG terminal

Pipeline

Cogeneration
Electricalenergy30-48%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.

Wider Energy Supply Business

Area-wide Energy supply to Kiyohara Industrial ParkWe are proceeding with construction of an energy center, mainlyconsisting of a 30 thousand kW-class cogeneration system, tosupply electricity and heat to multiple facilities (three companiesand seven facilities) in the Kiyohara Industrial Park in Utsunomiya
City, Tochigi Prefecture. The Tokyo Gas Group, to achieve maximum
efficiency in serving these customers,will monitor the fluctuatingload of each facility and engage in optimally balanced operation
to supply energy. This will be one of the largest area-wide energy
supply undertakings in an inland industrial park in Japan. We arepromoting widespread use and expansion of distributed energy
systems and tapping industrial demand.

23Achievements of the Chiba-Kashima Line

Securing Potential Demand in the Kanto Area

Even in regions where gas pipelines have not been laid, Tokyo
Gas is enabling the use of natural gas by transporting LNG
using lorries. We have a track record of over 40 years
transporting LNG in this way since 1969, and have the largest
scale lorry-based supply business in Japan, with over 190
vehicles.

Lorry supply area map
GPS2020

200km

150km

100km

Overall image after
full deregulation

50kmBusiness overview

In October 2015, Tokyo Gas commenced operation of its
Saito Line (connecting Soka, Saitama and Koga, Ibaraki). Thiswas followed by the opening of our Hitachi LNG Terminal andthe Ibaraki-Tochigi Line (between Hitachi, Ibaraki and Moka,Tochigi) in March 2016; and the Koga-Moka Line (betweenKoga, Ibaraki and Moka, Tochigi Prefecture) in October 2017.
By linking our three LNG terminals in Tokyo Bay and ourexisting trunk line network, we have completed a loop ofhigh-pressure trunk lines in our primary supply area, andimproved the stability of our supply infrastructure.
Capitalizing on our infrastructure development efforts,
Kobelco Power Moka is constructing a natural gas-fueled
thermal power plant in Moka City, Tochigi Prefecture. Inaddition to an expected increase in gas sales volume bysupplying gas to this power plant, we are also working tofurther develop potential demand.
Additionally, we are constructing a new Ibaraki Line that willconnect the cities of Hitachi and Kamisu in Ibaraki Prefecture,

Lorry-based LNG sales

Liquid gas business
OutlineNumber of customers
Direct sales

60 thousand
FY2017240 thousand
FY2017¥1.7billion
FY2017Structure of Tokyo Gas Liquid Holdings
Tokyo Gas Liquid Holdings

Tokyo Gas Energy

Tokyo Gas Chemical

Sales of LPG

Manufacturing and salesof industrial gas, utilizing
LNG cold energy

Utilizing LNG cold energy to manufacture andsupply industrial gases
We make effective use of LNG cold energy, to manufactureand supply affordable high-grade industrial gas. We are also
seeking to enhance our sales capabilities by offering onestop solutions to large-account customers by combining
LNG, engineering, and other Tokyo Gas services.

Established Gas Crew Co., Ltd.
logistics management company (July 2018)

Astomos Energy Corporation, ENEOS Globe Corporation
Comprehensive alliances

Astomos Energy Corporation (October 2016)
Saisan Co., Ltd. (February 2017)

Financial data

Examples of alliances with LPG business operators

Invisible assets

By forming alliances and collaborating with various LPG
industry players, Tokyo Gas will seek to achieve highlyefficient delivery and improve maintenance and customer
service levels, to achieve a business scale of around 1 million
customers by fiscal 2020.

Segment profits

Distributors

Corporate governanceTokyo Gas operates a liquid gas business, in which it sells
LPG to customers in locations outside its city gas supply
area and/or those who otherwise do not use Tokyo Gas
gas, and utilizes LNG cold energy to manufacture and sellindustrial gases.

Expanding business operations through allianceswith other LPG business operators, etc.

Message

The Chiba-Kashima Line commenced operation in March
2012, and has succeeded in dramatically increasing our gas
sales volume in Kashima waterfront industrial zone.
As a result, our gas sales volume in that area has grown tosuch an extent that it now accounts for approximately 10% of
our total consolidated gas sales volume.

aiming to commence operation in fiscal 2020. The completionof this line will enable even greater widespread promotion andexpansion of natural gas usage in the Kanto region.

Introduction

Promoting and expanding the widespread use ofgas in the Northern Kanto area

Test project to validate IoT-based remotemeter-reading/telemetry (June 2017)

Azbil Corporation, Azbil Kimmon Co., Ltd.

24