21Business overview

Gas business

GAS BUSINESS
OutlineApplications of gas from the Tokyo Gas Group span a wide range,from household use such as cooking, heating and hot watersupplies, to commercial use including air conditioning, industrialuse, 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, andSaitama) to North Kanto (Ibaraki and Tochigi), by lengthening its
pipeline network to serve more customers and cater to more demand.

Number ofcustomers(with city gas meters)

City gas sales
volumeSegment profits

Customer base of over 11 million customers and a relationship oftrust with customers through close ties with local communities
Established history of providing a safe and reliable supply of gas
amongst our customers
The Kanto region centered around Tokyo, with its highconcentration of production and consumption, as our primary sales
area (the Kanto region accounts for around 40% of Japan’s total GDP)

City Gas and LNG sales

11.818 million

FY2018FY2018Equivalent to approximatelyof total nationwide gas15.19 billion m 40%
sales volume in Japan3¥92.2 billion

FY2018Difficulties in LNG procurement due to the impact of geopoliticalrisks, etc., regarding imports
Strengths

Potential supply issues due to damage to production and supply
facilities caused by a large-scale disaster

Risks

Intensified competition driven by market deregulation; decline indemand caused by changing lifestyle

Safety-related know-how and energy solution capabilities

Net sales and Segment Profit

City gas sales volume and Number of customers(with city gas meters)(¥ billion)

Net sales (LH)(¥ billion)

Segment Profit (RH)

(billion m3 )Sales volume (LH)

Number of customers (RH)

(million)

200

20

1,500

150

1515

1,000100

101050050

5500

2,00002014.3

2015.3 2016.3

2017.32018.3 2019.3 2020.3(Planned)

02014.3

2015.3 2016.3

2017.32018.3 2019.3 2020.3(Planned)

Factors affecting revenues and expenses

New Procurement

20P65

Mozambique LNG Project
In February 2019, Tokyo Gas and Centrica LNG Company Limited in the UK concluded a saleand purchase agreement with Mozambique LNG1 Company Pte. Ltd. for the offtake of liquefiednatural gas (LNG) from the Mozambique LNG Project. This agreement paves the way for therevolutionary and innovative joint procurement of LNG between Japanese and Europeancompanies. Tokyo Gas and Centrica will, as foundation buyers, continue to support to the earlylaunch of the project with abundant reserves, and proactively manage demand fluctuations
across regions in Japan and Europe by taking advantage of different market circumstances.
Project Benefits

1

Diversify resource suppliersTokyo Gas’ first procurement from Africa basedon a long-term contract

2

Diversify contract terms
and conditions

Introducing multiple price indices anddestination free clauses

3

Diversify our LNG network

Constructing an LNG network that links between
Asia and Europe, aiming to proactively manage
demand fluctuations based on different market
circumstances and to improve the liquidity in theLNG market

22TOKYO GAS INTEGRATED REPORT 2019Japan relies heavily on LNG imports for procuring natural gas, and LNG import prices are generally determined by a mechanism linked tocrude oil prices. With the aim of achieving stable and affordable LNG procurement under these conditions, the Tokyo Gas Group strives toachieve three types of diversification: diversification of supply sources, contact terms and conditions, and its LNG network.
Diversification 1

Supply sourcesTokyo Gas’ long-term contracts

In 2018, we started to procure LNG from the US, while continuing
to acquire supplies from existing sources, including Southeast
Asia, Australia and Sakhalin (Russia). Now we have long-term
offtake contracts with 14 projects in 6 countries, including theIchthys Project in Australia, which we began receiving LNG
shipments from in 2018. In addition to the sale and purchaseagreement with the Mozambique LNG Project, we signed heads ofagreements with the LNG Canada Project and the Energia Costa
Azul LNG Project in Mexico in continuous pursuit of diversificationof procurement supply sources. Through efforts such as these,
we are working to enhance the stability of our LNG supply.
Numberof LNG
procurement
projects

2002

2017

2019

71214

projects

projects

projects

Existing LNG Project
New LNG Project (Sales and purchase agreement signed)
New LNG Project (Heads of agreement signed)
LNG Canada

Sakhalin

Cove PointTokyo

Energia Costa Azul LNG
Cameron

Qatar

BruneiMalaysiaMozambique

Pluto
GorgonDarwinNWS

QC

Ichthys

Diversification 2Contract terms and conditions
In addition to conventional crude oil price-linked contracts, we willconclude contracts under which the prices are based on natural gas
prices in the US and coal prices in a bid to increase price stability. We
also plan to increase the number of contracts with no restrictions onshipping destinations and other matters, and increase our ratio ofshort-term “spot” procurements, in order to enhance our flexibility.

Past

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

FutureDiversification of price indices and contract
periods, destination free clauses

Stable prices

Diversification 3

LNG Network

PastFuture

Mainly trade between Japan andits export-market countries

Network connecting Asian, North
American and European markets

By establishing an LNG network that connects the markets in Asia,
North America and Europe, we aim to improve LNG transportation
efficiency and reduce regional price differonces, which will increase
our flexibility to proactively manage demand fluctuations.

For innovative LNG procurement
We have had continued success procuring a stable supply of LNG over the past half century, however,following full deregulation of the electricity and gas markets, it is also necessary to take flexible action
in response to the fluctuation and uncertainty of demand and for more competitive LNG procurement.
To address these issues, it is vital to capitalize on our experience, past achievements and alliances wehave formed with Japanese and non-Japanese companies to take the lead in changing this LNG industry
without being constrained by past norms.
One specific example comes from our revolutionary joint procurement between a Japanese andEuropean company from the Mozambique LNG Project. The joint procurement came about from our longterm collaboration and a strong relationship with Centrica. This procurement is intended to secure highcompetitiveness and an ability to respond to demand fluctuations through flexible LNG transactions thatcombine two different markets in Asia and Europe.
Subsequently, we have continued talks for procurement from Canada and Mexico. We will continue
to exhibit our strengths in LNG procurement including transport and trading globally, and will continue tofurther implement innovative procurement aiming to increase our competitiveness and flexibility. With ourefforts we will contribute to the further development of the LNG industry.

Message
Etsuko Okuno
Procurement Sect. IIGas Resources Dept.

Initiatives Towards Achieving the Sustainable Development Goals (SDGs)

Diversification of supply sources leading to the expansion of the LNG network
In May 2018, Tokyo Gas began receiving shipments of LNG produced at Cove Point, Maryland, United States.
During FY 2018, Tokyo Gas began receiving LNG shipments from the Ichthys Project in Australia, and jointly
signed a sale and purchase agreement regarding the Mozambique LNG Project with Centrica. With the additionof these and various other projects, Tokyo Gas Is advancing the diversification of its supply 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.

23

Business overview

Gas business

Promotion and Expansion of Natural Gas
Usage through Infrastructure Development

2.0 billion mPotential toincrease

Kanto 100 km radius

9.0 billion m

Kanto 100-200 km radius
3Total

7.0 billion m3

Kiyohara Industrial Park

Plans to invest ¥500 billion in gas business overa three-year period (FY2018-2020)3

Moka Power Station(Scheduled for 2019 onwards)

Hitachi LNG
Terminal
Ibaraki–Tochigi Line
Ibaraki Line

Koga-Moka Line

(Scheduled for FY2020)

Saito Line

Significant potential demand in the Northern
Kanto area

Kashima
Waterfront
Industrial Zone

Kashima
Waterfront
Line

Kawasaki Natural Gas Power
Generation Co., Ltd.
Ohgishima Power Co., Ltd.
Ohgishima LNG TerminalChibaKashima
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 forsecurity, stable supply, and promotion and expansion of city
gas usage (maintenance and improvement of pipeline facilities,etc.), we will also carry out large-scale improvements toequipment and facilities, including the completion of the Ibaraki
Line, expansion of the Hitachi LNG Terminal, and theconstruction of a customer information management system.

Tokyo Gas Baypower Co., Ltd.

Tokyo 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 toexpand gas sales volume from 19.1 billion m3 in fiscal 2017
(forecast at the time of formulation of GPS2020) to 20.7 billion
m 3 by promoting and expanding the widespread use of natural
gas by extending the length of our pipeline network and lorry
supply; and providing energy solutions including energy
conservation, CO 2 reductions and cost reductions via the use ofnatural gas and gas appliances.

Sodegaura LNG Terminal

Promoting the widespread use and expansion of distributed energy systems
Cogeneration systems supply electricity and heat by using city gas asfuel. In addition to the installation of facilities at the point of demand,cogeneration systems help enhance energy efficiency, reduce theamount of CO 2 emissions, and improve economic efficiency through theconservation of energy by effectively utilizing both electricity andwaste 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.

Installation Results (March 2019)
ENE-FARM

Cogeneration System

Reached 110,000 units incumulative sales of ENE-FARM
in December 2018(equivalent to the capacity of about 2
nuclear power stations)2.29 million kW

Cogeneration System (Commercial, Industrial)Gas
LNG terminal

Pipeline

CogenerationElectricalenergy
30-42%Heat energy
30-55%

Waste heatthat is difficult
to use15-30%
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 ParkAn energy center mainly consisting of a 30 MW-class cogeneration
system will come into operation in fiscal 2019 to supply electricity andheat to facilities (three companies and 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 fluctuating load 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 are promoting widespread
use and expansion of distributed energy systems and tapping
industrial demand.

24

TOKYO GAS INTEGRATED REPORT 2019

Promoting and expanding the widespreaduse of gas in the Northern Kanto area
Achievements of the Chiba-Kashima Line
The Chiba-Kashima Line commenced operation in March 2012, andhas succeeded in dramatically increasing our gas sales volume inKashima waterfront industrial zone. As a result, our gas sales volume
in that area has grown to such an extent that it now accounts forapproximately 10% of our total consolidated gas sales volume.

Securing Potential Demand in the Kanto Area
In October 2015, Tokyo Gas commenced operation of its Saito Line(connecting Soka, Saitama and Koga, Ibaraki). This was followed by
the opening of our Hitachi LNG Terminal and the Ibaraki-Tochigi Line(between Hitachi, Ibaraki and Moka, Tochigi) in March 2016; and theKoga-Moka Line (between Koga, Ibaraki and Moka, Tochigi
Prefecture) in October 2017. By linking our three LNG terminals inTokyo Bay and our existing trunk line network, we have completed aloop of high-pressure pipelines in our primary supply area, andimproved the stability of our supply infrastructure. Capitalizing on
our infrastructure development efforts, Kobelco Power Moka Inc. isconstructing a natural gas-fueled thermal power plant in Moka City,Tochigi Prefecture. In addition to an expected increase in gas sales
volume by supplying gas to this power plant, we are also working tofurther develop potential demand. Additionally, we are constructing
a new Ibaraki Line that will connect the cities of Hitachi and Kamisu
in Ibaraki Prefecture, aiming to commence operation in fiscal 2020.
The completion of this line will enable even greater widespreadpromotion and expansion of natural gas usage in the Kanto region.

Lorry-based LNG sales
Even in regions where gas pipelines have not been laid, Tokyo
Gas is enabling the use of natural gas by transporting LNG usinglorries. We have a track record of 50 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

200km

150km

100km

50km

Expanding business operations
through alliances with other LPG business
operators, etc.
In July 2018, we set up Gas Crew Co., Ltd. It operates LPG fillingand distribution services in the Kanto region. In collaboration withvarious LPG industry players, we will work to enhance efficientdelivery and improve safety and customer services. We will thus aim
to deliver LPG to one million customers by fiscal 2020.

Utilizing LNG cold energy to manufacture andsupply industrial gases
We make effective use of LNG cold energy, to manufacture andsupply affordable high-grade industrial gas. We are also seeking toenhance our sales capabilities by offering one-stop solutions tolarge-account customers by combining LNG, engineering, and otherTokyo Gas services.
Tokyo Gas Liquid Holdings

Structure ofTokyo Gas
Liquid Holdings

Tokyo Gas Energy

Tokyo Gas Chemical

Sales of LPG

Manufacturing and salesof industrial gas, utilizing
LNG cold energy

Examples of alliances with LPG business operators
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)
Test project to validate IoT-based remote meter-reading/telemetry (June 2017)
Azbil Corporation, Azbil Kimmon Co., Ltd.
Release of an LPG container delivery plan
optimization system using AI (April 2019)
Azbil Kimmon Co., Ltd., Lyna Logics, Inc.

Liquid gas business

OutlineTokyo 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 sell industrial gases.

Number of customers (LPG)

60 thousand FY2018
Distributors 230 thousand FY2018

Direct sales

Segment profits¥0.3 billion

FY2018