Growth Strategy—Enhancing the LNG Value Chain

Action Plan Summary
OverseasUpstream andDownstream
Businesses

Three Areas of Diversification for Resource Procurement

Diversification
AreaProcuring Resources ina Stable and Affordable
Manner and Expanding
Overseas Operations

1

Resource Suppliers

Diversify resource procurement to break away from reliance on current mainstays
Asia and Australia and procure from around the world
Strategic
Goal

PresentSecure a stable supply while boosting bargaining powerin price negotiations by diversifying resource suppliers• ‌Primarily Asia and Australia

FutureAccelerating Diversificationin Three Areas to Reduce ResourceProcurement Costs
Natural resources are sparse in Japan, and thecountry lacks gas pipelines like those seen in North
America and Europe, which are needed to provide
an alternative for LNG. For these reasons, Japanesebuyers have been unable to leverage significant
bargaining power in price negotiations, forcing themto accept higher LNG prices than would be granted
to North American and European buyers. Always
aiming to procure a stable supply of affordable resources, Tokyo Gas is advancing an LNG procurement
strategy that advocates three areas of diversification.
Under the “Challenge 2020 Vision,” ¥320.0 billion,
or 16% of total capital expenditures, investments, andfinancing, will be directed toward overseas businesses
over the period from fiscal 2012 to fiscal 2020. Throughthis investment, we aim to grow overseas businesses tothe extent that 25% of total net income is generated bythese businesses, a substantial increase from the level of
10% in fiscal 2011. To realize this growth, Tokyo Gas willdevelop operations in upstream resource fields likenatural gas as well as in other fields where the Company
boasts specialties, such as energy services, engineering,and natural gas-fired thermal power generation projects.

Diversification
Area2• ‌Asia, Australia, and the restof the world

Procurement Contract Conditions

Realize a more diverse range of contract conditions, including prices linked to Henry
Hub and other indexes, as opposed to only crude oil prices, and free shipment
destinations, rather than facing restrictions
Strategic
Goal

Achieve flexibility in procurement prices and in overall LNG
marketing approaches through more diverse contractconditions• ‌Primarily crude oil pricelinkedPresent • Mostly long term• Shipment destination
restrictions

Diversification
Area3Future• Crude oil price linked• Henry Hub-linked• NBP-linked• Combination of differing
periods• Free shipment destinations

Our Global LNG network

Accumulate gas field and power plant holdings around the world
StrategicGoalPresent15

Tokyo Gas Annual Report 2014

Achieve flexibility in LNG marketing by actively strengthening
sales channels and expanding network of LNG users• ‌Transactions between
exporting nations and JapanFuture• ‌Network linking gas fieldsand power plants and otherusers around the world

Upstream and Downstream Expansion

Overseas Businesses
Strategic Goals—Upstream Businesses

Strategic Goals—Downstream Businesses• Secure returns on business investments• Secure returns on business investments•	Increase the Tokyo Gas Group’s resilience to crude oil pricefluctuations to stabilize earnings•	‌Leverage the Company’s strengths in regard to energy
services and engineering•	Acquire a diverse range of information by participating in
upstream projects

Investment in Overseas Businesses¥320.016%*

Operating Income from Overseas Businesses¥ billion
9.0billion

8.3

6.0

* Investment amount included in the “Challenge 2020 Vision”
3.0

Major overseas downstream projects
Existing upstream projects
New upstream projects

2.4

2.802012

2013

2014
(plan)

FY

Cordova

Belgium, T-Power

Cove PointTokyo

Barnett
Mexico, MT Falcon

Mexico, Bajio

Vietnam
MalaysiaBrazil, Malhas ProjectDarwin
Brazil, EcogenIchthys

Queensland Curtis

PlutoGorgon

Tokyo Gas Annual Report 201416

Growth Strategy—Enhancing the LNG Value Chain

Action Plan Summary

Expansion of Natural Gas Usage through Infrastructure Development
Productionand Supply

Potential of Growing to 9.0 Billion m3
General Industrial
Gas Sales Volume

Kanto region (100~200-kilometer radius)

2.0 billion m3

Developing Productionand Supply Infrastructure
to Cultivate Demand

3.4

FY2011billion m3

Kanto region (100-kilometer radius)

7.0 billion m3

Capturing Latent Demandin Northern Kanto
Under the “Challenge 2020 Vision,” ¥730.0 billion,
or 35% of total capital expenditures, investments,and financing, will be directed toward infrastructuredevelopment over the period from fiscal 2012 tofiscal 2020. A particular strategic focus will benorthern Kanto, which is home to several largescale industrial zones and therefore contains
significant latent gas demand. We will capture thisdemand by bolstering supply capacity and creating
pipeline loops that will boost supply stability. Also,
we will encourage fuel conversion from heavy fueloil and kerosene to natural gas while promoting
advanced uses of natural gas. Through theseefforts, we aim to expand gas sales volume to 22.0
billion m3 in fiscal 2020. Specifically, we aim tocultivate an increase in general industrial sales
volume from fiscal 2011’s 3.4 billion m3 to 7.0 billion
m3 in fiscal 2020, effectively doubling these sales.

FY2020Total

7.0billion m3

9.0 billion m3

Northern Kanto Containing Significant Latent Demand
Investment in Infrastructure
Development¥730.0 billion

Hitachi–Onahama Line(provisional name)35%*
Ibaraki–Tochigi Line
Hitachi LNG Terminal* Investment amount included in the“Challenge 2020 Vision”
Koga–Moka Line

Hitachi–Kashima
Line(provisional name)
Saito Line
Kashima
Waterfront
Line

Chiba–Kashima Line

Sodegaura LNG Terminal

Ohgishima LNG Terminal
Negishi LNG Terminal

 igh-pressure lines (existing)H‌High-pressure lines (constructioncommenced after “Challenge 2020Vision” launch)
High-pressure lines(under construction / consideration)
High-pressure lines(medium-to-long-term concept)
Other companies’ pipelines (existing)Tokyo Gas Group supply area

Gas Sales Volumes (“Challenge 2020 Vision” forecasts)
Billion m3
25.0

22.0

20.0
15.0

15.8

16.7

17.2

18.1

2011

2012

2013

2014
(plan)

10.0
5.0
0

17

Tokyo Gas Annual Report 20142020
(plan)FY

Infrastructure Development Plan (Non-consolidated, only disclosed for long-term facilities development plan)
Gas Sales Volume Plan and Infrastructure Development Plan (Non-consolidated)
Billion m3

Koga–Moka Line

17.0
16.516.0

Kisarazu Rinkai Line
(2nd phase)

Saito Line
Ibaraki–Tochigi Line
Extended Tochigi Line

16.8 billion m3
16.4 billion m3

15.5

15.7 billion m3

15.0
14.5

15.1 billion m3

14.00

2014

15.2 billion m3

Sodegaura LNG Terminal / Installationof Additional Vaporizer

Ohgishima LNG Terminal / Installationof Additional Vaporizer
Hitachi LNG Terminal
Onahama Satellite Terminal
2015

2016

2017

2018

FY

Total for fiscal
2014–2018

Facility Investment Plans (Non-consolidated)
Billions of yen

Production facilities
LNG-related facilities
Other
Supply facilities
Trunk linesOther
Business facilities
Subtotal for gas business facilities(reduction entry of land contribution for construction)
Incidental facilities
Total (reduction entry of land contribution for construction)

Fiscal 2013
resultFiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2017

Fiscal 2018

28.9
22.6
6.4
90.7
20.5
70.2
18.8

35.3
27.3
8.0
100.0
28.4
71.6
24.4

31.7
23.8
7.9
99.3
28.8
70.5
38.5

8.5
2.6
5.9
83.4
10.7
72.7
53.8

7.0
0.6
6.4
79.1
3.8
75.3
47.5

7.1
1.1
6.1
79.0
0.5
78.5
27.1

89.6
55.334.3
440.9
72.2
368.7
190.9

138.6

159.4

169.5

145.7

133.6

113.3

721.4

0.2
138.8

0.5
160.4

0.5
169.9

0.4
146.1

0.4
134.0

0.4
113.7

2.3
723.7

Cultivating Demand Based Out of the Hitachi LNG Terminal

Ibaraki Prefecture

Ibaraki• Advancing Demand Cultivation in Northern Kanto andEstablishing Pipeline Loops to Boost Energy Security
throughout Kanto
Estimating that its gas sales volume will outstrip current supply
capacity by the late 2010s, Tokyo Gas is moving forward with theHitachi Project. The Hitachi LNG Terminal, which we began constructing in July 2012, will play a central role in advancing this project. Thisterminal will be connected to the Ibaraki–Tochigi Line that we commenced building on the Tochigi Prefecture side in January 2012, andboth are scheduled to be operational during fiscal 2015.

Capturing Demand in Kanto’s Leading Industrial Zone
The Chiba–Kashima Line was completed in March 2012. The construction of this trunk pipeline enabled us to commence supply to theKashima Waterfront Industrial Zone. Situated in Ibaraki Prefecture, thisis one of the Kanto region’s leading industrial zones, and we areworking to capture industrial demand therein. Located in this zone,
the Kashima Thermal Power Station of Tokyo Electric Power Company, Incorporated, replaced all three of its gas turbines with highly
efficient combined cycle turbines in June 2014. Tokyo Gas plans totake advantage of this development to expand gas sales volumes.
Moreover, we aim to cultivate future demand in this zone in the rangeof 1.5 billion m3 to 2.0 billion m3.

Tochigi
Koga–MokaLine

Hitachi LNG Terminal

New pipeline for
Mito Area
Hitachi–Kashima Line(provisional name)Western Ibaraki
Industrial Area	Natural gas infrastructure(under consideration)	Tokyo Gas pipelines(under construction)	Other companies’ pipelines(in service)
Major industrial areas in Ibaraki

Mito–Tsuchiura
Industrial Area

Kashima
Waterfront
Industrial Zone

Chiba

Gas Sales Volumes in the Kashima Waterfront Industrial Zone
Million m3
2,000

1,505

1,500
1,000
50076540502012

2013

2014
(plan)FY

Tokyo Gas Annual Report 201418

Growth Strategy—Enhancing the LNG Value Chain

Action Plan Summary

Expanding Power Generation(Natural Gas-Fired Thermal Power Generation)
Energy Solutions

Providing Diverse
Energy Solutions
Stably Supplying Energy to theTokyo Metropolitan Area
Under the “Challenge 2020 Vision,” ¥600.0 billion,or 29% of total capital expenditures, investments,and financing, will be directed toward cultivatingenergy demand over the period from fiscal 2012 tofiscal 2020. By providing various energy solutions
centered on natural gas, we aim to diversify therange of circumstances in which natural gas is used
and thereby enhance the LNG value chain.

Tokyo Gas is utilizing the insight and expertise it has developed through handling
LNG in the gas business to conduct natural gas-fired thermal power generation
projects, another area where it boasts strength. In addition, we anticipate that
substantial synergies can be generated by developing natural gas-fired thermal
power generation operations in conjunction with the gas business.
For details, see P.33 Focus Story

The scope of the Company’s power generation operations encompasses theprocurement of resources (fuel), generation, and sales. In these operations, wholly
owned subsidiary Nijio Co., Ltd., procures its own fuel (LNG) and then subcontracts power generation using this fuel to four Group-owned power plants thatemploy gas turbine combined cycle generation*. These plants have a total combined generation capacity of 2,000 MW (of which, the Tokyo Gas Group’s ownership share is 1,300 MW). Generated power is primarily sold to ENNET Corporation, a power producer and suppliers (PPSs), and on the Japan Electric Power
Exchange, a power wholesale exchange. At present, we are not conducting
retail sales.
* This generation method generally entails combinations of gas turbines and steam turbines. The gas turbine burns fuelto generate electricity, and the heat from this generation process is used to boil water to power the steam turbine. This
two-step generation process realizes high thermal efficiency.

The Group’s Natural Gas-Fired Thermal Power Plants (Fiscal 2015)
Kawasaki Natural Gas
Power Generation Co., Ltd.

840 MW

Ohgishima Power Co., Ltd.

1,221 MWTokyo Gas Baypower Co., Ltd.

100 MW

Tokyo Gas Yokosuka Power Co., Ltd. 240 MW

Under the “Challenge 2020 Vision,” we aim to raise the generation capacity ofthe electric power business from the current 2,000 MW to between 3,000 MW
and 5,000 MW over the period from fiscal 2012 to fiscal 2020. One way we areboosting generation capacity is through the construction of the third unit at theOhgishima Power Station. The unit will have a generation capacity of approximately 407 MW and is slated to commence operation in fiscal 2015. In addition, inMarch 2014, we reached a basic agreement with Kobe Steel, Ltd., to purchasea total of 1,200 MW of electricity annually from this company’s power station inMoka City, Tochigi Prefecture, after both Unit 1 and Unit 2 commence operationsin 2019 and 2020, respectively. At the moment, we expect our total power portfolio to have a generation capacity of approximately 3,600 MW in fiscal 2020 after
these power sources are incorporated.
Confirmed Expansions in Generation Capacity (Including other companies’ interests)
MW

Start-up of operation ofboth units of Kobe Steel’s
Moka power station

6,000

4,000

2,000

Start-up of operation of third unitof Ohgishima Power Station

2,000 MW

1.5 to 2.5 times
the current level
3,000~5,000 MW

3,600 MW

2,400 MW02013

19Tokyo Gas Annual Report 20142015 (plan)

2019~2020 (plan)2020 (plan)FYAiming to further diversify our power source portfolio, we are examining the possibility of employing power sources other than natural
gas-fired thermal, such as coal-fired thermal. At the same time, wewill continue to develop our electric power business by carefully
monitoring trends in Japan’s supply and demand situation for electricity as well as developments regarding electricity system reform toaccurately evaluate the economic rationality of future ventures.

Supplying LNG throughout Japan
Not limiting its operations to the Kanto region, Tokyo Gas provides theresources that it procures throughout Japan. We thereby meet theneeds of gas companies throughout the country, supplying them withLNG via tank lorries, large ocean-going tankers, and smaller domesticvessels. The expansion of our sales channels in this manner is yet
another one of our efforts to enhance the LNG value chain.
As one facet of these efforts, we commenced supply to the Ishikari
LNG Terminal of Hokkaido Gas Co., Ltd., in October 2012. This projectis our first endeavor to provide a domestic gas company with gas
procured by the Company via ocean-going tankers. Through thisventure, the Ishikari LNG Terminal will be supplied with between 300,000
tons and 400,000 tons of LNG per year during the 11-year period
beginning fiscal 2012. Further, we acquired a 20% stake in Hokkaido
LNG Co., Ltd., a consolidated subsidiary of Hokkaido Gas that is thedirect owner of the Ishikari LNG Terminal, to deepen our relationship as
we work to advance the spread of LNG. We also signed an LNG sales
agreement with Saibu Gas Co., Ltd., for the supply of about 300,000
tons of LNG per year over the 16-year period beginning fiscal 2014.

Against the backdrop of increased demand for energy security andbusiness continuity plans, we have been promoting sales of commercial and industrial cogeneration systems, and our cumulative stock ofthese systems has reached 1,810 MW. We plan to raise this cumulative stock to 4,000 MW in fiscal 2020.
Cogeneration System (Commercial, Industrial) Stock Plan
MW
4,000

4,000
3,000
2,000

1,530

1,650

2011

2012

1,810

1,00002013

2020(plan)

FY

Benefits of Cogeneration Systems
1. Reduced Energy Usage and Costs
As cogeneration systems make effective use of waste heat or direct this heatfor use in air conditioning or water heating equipment, they contribute toreductions in energy costs.
2. Environmental Preservation Benefits
City gas is a clean source of energy and its systems make effective use ofwaste heat, thereby helping cut CO2 emissions by approximately one-third incomparison with conventional systems.
3. Improved Energy Security
Cogeneration systems enable the usage of several power sources, making iteasier to secure a supply of electricity during times of disaster.

Supplying LNG via Domestic Vessels
and Overseas Ocean-Going Tankers

Hibiki LNG Terminal
Saibu Gas Co., Ltd.
(Supply to commencein fiscal 2014)

Promoting the Proliferation and Expansion
of Dispersed Energy Systems

Ishikari LNG Terminal
Hokkaido Gas Co., Ltd.
(Currently being supplied)
Hakodate Minato
LNG Terminal
Hokkaido Gas Co., Ltd.
(Currently being supplied)
Hachinohe LNG Terminal
JX Nippon Oil & EnergyCorporation(Currently being supplied)
Cogeneration system

LNG tanker Energy FrontierTokyo Gas Annual Report 201420