Deregulation is reshaping our market. How are we responding?

Honing a Sharper
Competitive Edge
KANTO PLAIN

Negishi LNG Terminal
Commenced operations: 1969
Daily production capacity:
1.0 trillion Btu (21 million m3)
Storage capacity: 1.2 million m3
Special feature: Received Japan’s firstTOKYO

shipment of LNG in 1969

Head Office
Sodegaura LNG Terminal
TOKYO BAY

Commenced operations: 1973
Daily production capacity:
1.3 trillion Btu (29 million m3)
Storage capacity: 1.6 million m3

8Special feature: The world’s largest

Ohgishima
LNG Terminal

LNG receiving terminalYOKOHAMASodegaura
LNG Terminal

NegishiLNG Terminal

Ohgishima LNG Terminal
Commenced operations: 1998
Daily production capacity:
0.4 trillion Btu (10 million m3)

Length of pipeline: 46,285 km(As of March 31, 1999)

05

1015

High-pressure transmission pipelines
Planned or under construction
Medium-pressure transmission pipelines
Tokyo Gas service area20（km）

Storage capacity: 0.2 million m3(another 0.4 million m3 is presently
under construction)
Special feature: The world’s firstcompletely underground 200,000 m3
LNG storage tank and Japan’s first
offshore LNG receiving berth200

20,000150

15,000100

10,00050

5,000Capital Expenditures andDepreciation in Relation toGas Sales Volume(1992~2004)(Left scale: billion ¥)(Right scale: million m3, 46.047 MJ/m3)

Capital expenditures
Depreciation

00
Mar. 31 92

9394

95

96

97

98

9900

0102

Note: 2000~2004 are projected figures.
The above graph represents non-consolidated data.
TOKYO GAS Annual Report 1999

0304

Gas sales volume

I. Investing in a Powerful Supply Infrastructure

Demand for natural gas has risen as energy providers look for alternative energy sources other than petroleum and the government looks for solutions to environmental problems. According to MITI’s Long-term Energy Demand and Supply Outlook forJapan (1998), growth is set to continue—the demand for natural gas is expected to rise 18% compared to 1996 by 2010. Overall
energy demand, by comparison, is predicted to increase 3%. We are well placed to benefit further from this trend. Here’s why.

Foresight Set to Pay Handsome Dividends
Recognizing the potential of natural gas, Tokyo Gas invested in a powerful supply infrastructure. With deregulation set tofuel even more demand for gas, our investments are giving us a competitive advantage. Significantly, these large-scale
investments will approach completion in 1999—investments have already passed their peak. We are thus poised to start
recovering on our investments.

Unrivaled Natural Gas Supply Capacity
Just how powerful is Tokyo Gas’ supply infrastructure? Tokyo Gas has Japan’s largest natural gas supply capability and isprogressively upping capacity. Three LNG terminals—each of which plays a prominent role in Japan’s gas industry—are at
the heart of this strength. Our Negishi LNG Terminal received Japan’s first shipment of LNG in 1969. Our Sodegaura facility
is the world’s largest LNG receiving terminal. And then there is the new Ohgishima LNG Terminal, the first phase of whichcame on stream in October 1998. Boasting the most sophisticated technologies, Ohgishima is of particular strategic importance. The terminal’s location in the high-demand Keihin district near Yokohama means lower costs because a new longdistance pipeline is not required. Ohgishima will eventually have a production capacity of approximately 4 billion m3 perannum to respond to increasing demand.

Extensive Transmission and Distribution Network
Investments to bolster our transmission capacity are allowing us to take maximum advantage of our competitive edge inproduction. Two new pipelines, the Keihin Transmission Pipeline and the Yokohama Transmission Pipeline, slated for completion by the end of 1999, will augment our supply capability and complete a transmission loop and mutual backup system forour three LNG receiving terminals. What this means is that should an LNG receiving terminal go out of action, supply willcontinue as the other terminals can step in to take up the slack. The result: an even more powerful network for providing
customers with a reliable supply of gas.
With these enhanced infrastructures we will be able to meet growing demand during the next few decades with minimum
additional investment.
LEFT
Ohgishima LNG Terminal
offshore receiving berth
CENTER
Sodegaura LNG Terminal
RIGHT
Part of Tokyo Gas’ transmission pipeline

Annual Report 1999 TOKYO GAS

9Deregulation is reshaping our market. How are we responding?

Honing a Sharper
Competitive Edge

10

Cogeneration system testing laboratory
Increasing the capacity of cogeneration (high efficiency, high reliability)
Promoting the use of gas-fired air conditioning (high efficiency)
Developing gas appliances for residential use (high quality, low cost)
Minimizing environmental impact

Program Objectives andStrategies

Promotingthe use ofnatural gas
Newbusinessesanddirections

Advancing into new fields of business
Diversifying resources for the production of gas

Strengthening
the foundation ofgas production,supply, andservice
Reducing construction and maintenance costs for plants and pipelines
Enhancing the quality and efficiency of operations through advanced information technology
Ensuring further increases in safetyTOKYO GAS Annual Report 1999

II. Innovative Technology, More Competitive

An extensive and sophisticated supply network for gas is just one way in which we are honing a sharper competitive edge.
Fully aware that a deregulated climate forces us to compete against other forms of energy, particularly electricity, we are
strategically targeting R&D. Our aim is to give customers even more compelling reasons to choose gas over other energy
sources. R&D will be a driver of future growth at Tokyo Gas.

Technologies to Create Demand
1. Gas Cogeneration Systems One of our main research themes is cogeneration systems, which optimize energy use byproviding electricity and recovering thermal energy. The ability of these systems to save energy and reduce greenhouse gas
emissions makes them an attractive alternative for customers. Presently, we are working on micro turbines and fuel cells forresidential cogeneration systems.
2. District Heating and Cooling (DHC) Systems

Tokyo is one of the most densely populated cities in the world. With land

at a premium, building space must be used as effectively as possible. DHCs achieve this goal, in addition to energy savings,by circulating chilled water, hot water and steam from centralized energy plants via a network of pipes.
3. Gas-fired Air Conditioning National energy policy is now promoting gas-fired air conditioning because of the increasingneed to (1) raise the load factor of both gas production and gas distribution systems throughout the year, and (2) alleviate
the electricity demand peak during the summer period. In this way, Tokyo Gas is helping to balance energy supply anddemand, as well as reduce the overall energy costs of its customers.

Technologies for Enhanced Infrastructure
Our gas infrastructure is underpinned by the development of innovative technologies that improve safety and reliability andyield cost savings. Foresighted investments in technologies such as high-pressure transmission and underground storage systems will ensure a stable, reliable and economic supply of gas to our customers in the future.

Technologies for Future Operations and Profits
Information technology (IT) is playing a vital role in expanding the gas market by helping to forge stronger relationships withcustomers. Our advanced services that draw on IT to establish effective two-way communication with gas users are raisingcustomer satisfaction while adding an extra element of flexibility to our operations.
R&D Budget Allocation by Program Objective(Year ended March 31, 1999)
Others 6%

Cost reduction 10%

New directions 4%
Alternative resources 1%
Information technology

Safety14%

Cogeneration

23%

12%

Environment 6%

Gas appliances 13%
Gas cooling 11%
Total: ¥14 billion

Annual Report 1999 TOKYO GAS11