GASBUSINESS
Outline and Strength
The Tokyo Gas Group began its gas business with supply of gas
for lighting and since then has expanded applications of its gas
to residential cooking, heating, and hot water; commercial air
conditioning; industrial use; power generation; and other usage,by which we have increased the number of customers to over 11million. In fiscal 2015, our consolidated gas sales volume was 15.4
billion m3, representing about 45% of Japan’s gas sales volume.
The Kanto Region, our Group’s service area, accounts for about
40% of Japan’s gross domestic products (GDP) and is expected tohave vigorous production and consumption activities. We therefore
anticipate sales volume growth particularly in the industrial sector.
These two aspects will continue to support our growth.
Our Group strengths include achievement in delivering“reliability” through stable supply of gas, and ensuring its safety.
While the completion of the deregulation program for retailgas in April 2017 is likely to further intensify competition in theTokyo area, the Tokyo Gas Group is carefully confident in facing
increased competition by making best use of its base of over
11 million customers, which have been accumulated over 130
years since its foundation, and relationship of trust with thosecustomers, the majority of which have been our customers foryears. This will be supplemented by benefits from the group’s
safety-related know-how and energy solution technology.

11 Of resource
suppliers

Anticipatory diversification to achieve
stable and affordable LNG procurement
Japan heavily relies on imports for natural gas procurements.
Prices for LNG imported are generally set under a frameworkthat is linked to the price of crude oil. Aiming for stable andaffordable LNG procurement with these given conditions inthe background, the Tokyo Gas Group has been using an
LNG procurement strategy that calls for diversified
procurement sources, varying contract terms and conditions,and developing its LNG network.

TOKYO GAS ANNUAL REPORT 201621

for stableprocurement22 Of contract
terms andconditions
for stable prices

Three Ways ofDiversification

3
3 Of the LNG
network
for more flexibility

Business outline

1 Diversify resource suppliers

Sakhalin

Tokyo Gas began to receive LNG from the Gorgon LNG Projectin Australia, which resulted in increasing the number of LNG
suppliers to 12 projects in 5 countries, and making Tokyo Gas
one of the foremost purchasers with diversified contracts inJapan. In our striving to enhance procurement stability we will beconsidering widening LNG procurement from Southeast Asia
and Australia to include North America and Africa. We will also
study adopting non-conventional gas such as shale gas.
LNG
suppliers2002

2016

7 projects

12 projects

2 Diversify contract terms and conditions
By adding contracts linked to the United States natural gas
prices and other benchmarks, in addition to conventionalcrude oil price-linked contracts, we aim to have a betterbalanced portfolio of contracts and thereby to stabilize
procurement costs. We also intend to increase the number ofcontracts which allow us freedom to determine shipment
destinations and other matters to enhance our flexibility.

3 Diversify our LNG network

Tokyo
Cove Point

Qatar

CameronBruneiMalaysia

New LNG Project
Existing LNG Project

Pluto

DarwinGorgonQC (Queensland Curtis)

NWS
IchthysPresentFuture
Linked to crude oil price

Mostly linked tocrude oil price

Linked to Henry Hub prices

Mostly long-termcontracts(National Balancing Point) prices

Forwarding withdestination clauses

Linked to NBPStableprices

Diversified contract periods
Free choice of shipment
destinations

PresentFuture

Mainly trade between Japan andits export-market countries

Network that connects places such as gas
fields and power plants across the globe

By establishing an LNG network that connects the markets inEurope, Asia, and North America, we aim to reduce costdifferentials among regions and to position ourselves toflexibly adjust demand and supply.

Enhance and expand alliances with other LNG players forenhanced flexibility and economic efficiency
Tokyo Gas will enhance and expand alliances with LNG
players in Japan and overseas to achieve price-competitive
LNG procurement and ensured flexibility.
September Signed a memorandum of understanding on a2014
strategic alliance with Korea Gas Corporation,South Korea

August2015

Signed a memorandum of understanding on a
strategic alliance with CPC Corporation, Taiwan

April
2016

Agreed on a strategic alliance with Kansai ElectricPower concerning LNG procurement and know-howin power plant operation

22

TOKYO GAS ANNUAL REPORT 2016

Expansion of Natural Gas Usage through Infrastructure Development
Investment of ¥730 billion in nine years indomestic infrastructure

Northern Kanto, a region of significant
potential demand

Under the Challenge 2020 Vision, Tokyo Gas plans to invest
around ¥730 billion, equivalent to 35% of its total investment
budget, in domestic infrastructure upgrades over the nineyear period from fiscal 2012 to fiscal 2020.

Tokyo Gas puts particular strategic emphasis on Northern
Kanto which has strong potential demand growth for naturalgas owing to large-scale industrial zones.
We aim to expand gas sales volume from 15.0 billion m3 in fiscal
2011 to 22.0 billion m3 in fiscal 2020 by advancing on two fronts:

Kanto 100-200km radius

2.0 billion m3
Potential toincrease to 9.0billion m3
Kanto 100km radius

7.0 billion m3

Total1) further enhancing the stability of supply through expanded
supply capacity for the development of potential demand andthe completion of its pipeline loop; and 2) promoting fuelconversion from heavy oil and kerosene as fuel to natural gas
and advanced utilization of natural gas. In particular, we aim todouble the sales volume of gas used by general industry, from
3.4 billion m3 in fiscal 2011 to 7.0 billion m3.

9.0 billion m3
General Industrial
Gas Sales Volume

7.0

3.4billion m 3billion m3

Fiscal 2011

Fiscal 2020

Advantages of natural gas, superior in eco- friendliness and earthquake resistance
Benefits of fuel conversion

Eco-friendly; no need for storage; improved operability (noclean-up); labor saving; stable supply

CO2 emission reduction by conversion from A
heavy oil to natural gas

CO2 emission reduction by fuel conversion

A heavy oil+Conventionalburners

Comparison of CO2 Emissions (Coal=100)
Natural gas

Oil

Coal

6080100

CO2 emission reduction by use of advanced(high efficiency) facilities

Gas processing facilities designed for high efficiency requireless energy for industrial heat sources and emit less CO2

CO2Emissions

Fuel
conversion

100To naturalgas

Advancedutilization

Higherefficiencyof burners

7545-70

Adoption of high efficiency burners; collection ofexhaust heat; improved heat insulation and reduced
heat loss at openings; improved combustible air ratio

Examples ofadvanced utilization
measures

Promoting the widespread use and expansion of distributed
energy systems
Tokyo Gas will promote diversification in use of natural gas by providing energy solutions centered on natural gas and continue toimprove its LNG value chain.

Residential fuel cell system “ENE-FARM”
The “ENE-FARM” residential fuel cell system is a type of
distributed energy system that is installed onsite at customers’
homes. This highly efficient system uses city gas to generate
electricity while also utilizing the heat created through thegeneration process to heat water. “ENE-FARM” is an importantstrategic product in residential gas sales as customers using
this system also consume greater volumes of city gas.
Since the first unit was launched in 2009, “ENE-FARM” hascontinued to evolve to introduce smaller, lower-priced
models. In March 2016, our “ENE-FARM” installed base hadrisen to approximately 61,000 units.

TOKYO GAS ANNUAL REPORT 201623

“ENE-FARM” (Residential) Installation Plan(Thousands units)

400

300

300

200

1000

9.6

17.2

29.4

2012.32013.32014.3

43.4

2015.3

61.4

2016.32021.3(Plan)

Business outline

Hitachi LNG Terminal
Moka Power Station(Kobe Steel)

GAS

Ibaraki Line (Scheduled for 2020)

Koga-Moka Line

BUSINESS(Scheduled for 2018.3)

Kashima Waterfront
Industrial Zone

Saito LineGas sales volume in the Kashima area
surged to represent 10% of total
As a first step toward capturing potent demand through thedevelopment of infrastructure, we completed the ChibaKashima Line in March 2012. Gas sales volume increased
dramatically in the Kashima Waterfront Industrial Zone toapproximately 1.8 billion m3, representing about 10% of ourKashima
Waterfront Line

Chiba–Kashima Lineconsolidated gas sales volume in fiscal 2015.

Tap Northern Kanto’s greater potential
market for gas by another fuel conversion
initiative
Sodegaura LNG Terminal
Ohgishima LNG Terminal
Negishi LNG Terminal
Gas Sales Volume in the Kashima Area
(Million m3)

2,000

1,794

1,869

1,500

1,000
765
5004050

The Saito Line (Soka City, Saitama Prefecture–Koga City,Ibaraki Prefecture) started service in October 2015, followedby the start of service of the Hitachi LNG Terminal and theIbaraki-Tochigi Line (Hitachi City, Ibaraki Prefecture-MokaCity, Tochigi Prefecture) in March 2016. By linking with ourexisting three terminals in Tokyo Bay and our high-pressure
trunk line network, our supply infrastructure has become
more stable. Given our infrastructure building in Northern
Kanto, Kobe Steel has decided to construct a gas-fueled
thermal power plant in Moka City, Tochigi Prefecture. In
addition to the projection of an increased gas sales volume
by supplying gas to this power plant, we anticipate that it
will enable us to tap into more potential demand.
In order to complete our infrastructure base in Northern
Kanto, we have decided to construct an Ibaraki Line between
Hitachi City and Kamisu City. This will enable us to develop
further demand in the Kashima area and increase use ofnatural gas in the Kanto Region.

2013.32014.32015.32016.3

Commercial and industrial cogeneration systems
Cogeneration systems supply electricity and heat through power
generators and other means. In addition to the installation offacilities at the point of demand, cogeneration systems help toenhance energy efficiency, reduce the amount of CO2 emissions,

Cogeneration System

Cogeneration system(Commercial, Industrial)

Installation Plan(MW)5,000
LNG terminal4,000

4,000and improve economic efficiency through the conservation ofenergy by effectively utilizing both electricity and waste heat.
3,000
Against the backdrop of increased demand for energy security andbusiness continuity plans, we have been promoting sales of
2,000
1,790 1,850
commercial and industrial cogeneration systems, and the scale of
1,500
our cumulative installed base of these systems has reached 1,850
1,000
MW. Aiming at widespread adoption, we are increasing the productline-up by having commercialized 1MW gas engines with reduced
0low maintenance costs as well as an easy-to-install package type of
2012.3 2015.3 2016.3 2021.3
co-generation.
(Plan)

Pipeline*Energy efficiency
stated below
is calculated
based on certain
assumptions madeby Tokyo Gas.

Gas
Electricalenergy
30-48%

Cogeneration

Waste heat that isdifficult to use
15-30%

24

Heat energy(steam)30-55%

Total energy
efficiency
70-85%*TOKYO GAS ANNUAL REPORT 2016