The Gas Industry in

20/April/2007

The Japan Gas Association 1 City Gas Industry in Japan

2 Number of City Gas Utilities

◆ 212 city gas utilities in Japan

◆ 1/6 are run by municipalities

◆ 90% of utilities are medium- or small-sized (as of the end of March, 2007)

(Number of Customers) Private Municipal Total Share of Utilities 10,000 or less 84 14 98 46.2 10,001 – 100,000 72 20 92 43.4 100,001 – 500,000 14 2 16 7.6 500,001 or more 6 0 6 2.8

Total 176 36 212 100.0 7.6% 2.8%

10,000 or less 43.4% 46.2% 10,001 – 100,000 100,001 – 500,000 500,001 or more

3 Trend of Gas Sales Volume and Number of Customers (billion cubic feet)

◆ Gas sales volume increased for the 28th consecutive year.

(bcf) 1.15 trillion (million customers) 1,200 cubic feet 30 Sales volume (left axis) Number of customers Residential 29 1,000 28

800 27 Commercial 26 600 25

400 24 Industrial 23 200 22 Others 0 21 '00 '01 '02 '03 '04 '05 (FY) Source: The Japan Gas Association ⚫Residential: General households (cooking, water heating, air cooling and heating, drying, etc.) ⚫Commercial: Companies/business establishments, wholesale/retail stores, restaurants, inns/hotels, department stores/supermarkets, beauty parlors, dry cleaning stores, amusement/entertainment facilities, boarding houses/dormitories, etc. ⚫Industrial: Manufacturers, etc. in fields such as foodstuffs/food products, textiles, paper/pulp, chemicals, ceramics/earth/stone, steel, non-ferrous metals, metals, machinery, etc. ⚫Others: Schools, public agencies, hospitals, clinics, medical offices, etc. 4 Gas Sales Volume by Sector and Utilities

◆ 212 city gas utilities in Japan (as of the end of March, 2007)

◆ *‘Big 4’ utilities represents 78% of total sales volume in Japan

Sales volume by sector (billion cubic meter) Sales volume by utilities (billion cubic meter)

Others Others 2.9 bcm 7.2 bcm (8.8%) Residential (22.4%) 9.9 bcm Gas (30.5%) Saibu Gas 12.3 bcm (FY 2005 ) 0.8 bcm (FY 2005 ) (37.7%) Total: 32.5 bcm (2.4%) Total: 32.5 bcm Industrial *10,000kcal/m3 Gas *10,000kcal/m3 14.8 bcm 3.5 bcm (45.5%) Commercial (10.7%) 4.9 bcm Gas (15.1%) 8.7 bcm (26.8%)

Source:The Japan Gas Association *Big 4: The four biggest utilities are , , Toho Gas and Saibu Gas 5 Number of Customers by Sector and by Utilities （as of April 2006） ◆ The number of natural gas customers is 27.8 million, while that of LPG is 26.1 million

◆ *The big 4 utilities’ customers account for 71% of the nation’s city gas customers. *The big 4: Tokyo Gas, Osaka Gas, Toho Gas and Saibu Gas

Industrial 0.2% Others Big 4: 71.5% (0.1 million) 1.0% (0.3 million) Commercial 4.7% (1.3 million) Osaka Tokyo Toho Residential Saibu 94.1% (26.1 million)

Total: 27.8 million customers Others: 18.5% (as of Apr. 2006)

*Reference: LPG Customers Source:The Japan Gas Association Total 26.1 million 6 Current Situation of City Gas Industry

◆ No nation-wide trunk line

◆ Major gas utilities; LNG importer and distributor

◆ Wider range of responsibilities for safety

◆ No combination utility (gas and electricity)

◆ Fierce competition with other energy sources

◆ METI --- Sole regulator

7 Japan’s Natural Gas Chain

Japan Gas Well Gas LNG Importing LNG loading, Distribution Customer Liquefaction storage, re- Pipeline gasification, etc.

International trading LDC (Local Distribution Company)

USA Gas Well Gathering Inter State City Gate LDC Customer Pipeline Pipeline

Inter-state trading (under FERC’s control) LDC (Local Distribution Company)

8 Natural Gas Transmission Network and LNG Receiving Terminals

◆ 27 terminals (as of October 2006, excluding three coastal-career-use only terminals )

◆ No nation-wide trunk line

LNG Terminal (in operation)

LNG Terminal (planned)

Satellite Station (in operation / under construction)

Satellite LNG Terminal exclusively for Coastal Vessel (in operation / under construction) Major Trunk lines Trunk lines (planned)

9 Natural Gas Pipelines

◆ The length of natural gas pipeline is continuously increasing

1997

1999

2001

2003

FY 2005 86% 13% 0.8%

0 50 100 150 200 250 (thousand kilometer)

Low Pressure Middle Pressure High Pressure (Less thanr 0.1 MPa) (0.1 to 1 MPa) (Over 1 MPa)

Source: The Japan Gas Association 10 Proportion of City Gas Feedstock

◆ Most feedstock of city gas is natural gas including indigenous gas.

1980

1985

1990

1995

2000 LPG, etc 2005 Natural Gas 94.3% 5.6%

0% 20% 40% 60% 80% 100% LNG Indigenous natural gas Coal and coke LPG Naphtha, etc

Source: The Japan Gas Association 11 Progress of Regulatory Reform in Gas Market

◆ Liberalization of Retail Market

3 1995 2 million m (*44%) or more *per annum Large-volume customers 1999 1 million m3 (*49%) or more

3 Medium-volume 2004 0.5 million m (*52%) or more customers Small-volume customers 2007 0.1 million m3 (*59%) or more

Small-volume Under customers Below 0.1 million m3 (*100%) including discussion residential use *Ratio of total sales volume

◆ New entrants’ share in liberalized market

*8.1% (as of March 2006) (23 entities, 136 sites (as of Aug. 2006))

*Ratio of total sales volume 12 Wider Range of Responsibilities for Safety

Public roads, etc. Customer premises

Gas meter

Meter M valve Gas valve Gas appliance

District main

House pipe Service pipe (excluding gas meter) Gas appliances and ventilation facilities

Responsibility range in Japan

Property division Gas utility Customer Construction division Gas utility Customer (installer) Responsibility division Gas utility Customer (installer) Responsibility range in US Property division Gas utility Customer Construction division Gas utility Customer (installer) Responsibility division Gas utility Customer (installer) 13 Gas Utilization for Market Cultivation

14 Gas Fired Cogeneration

- Natural gas fired cogeneration

• Diffusion of gas cogeneration systems and the target Number of Operating capacity (GW) installations 6.0 30,000

aOperating capacity 4.98GW 5.0 25,641 25,000 bNumber of systems

4.0 20,000 3.59

3.13 3.0 15,000 2.42 2.15 1.90 13,785 2.0 1.69 10,000 1.33 1.51 1.19 1.00 5,778 1.0 0.87 5,000 1,673 2,578 1,014 1,151 1,400 709 796 906 0.0 0 FY1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2010 * Steam turbine not included Source: The Japan Gas Association * The target includes fuel cell cogeneration 15 Residential Cogeneration

• “Eco-Will,” 1kW gas fueled engine cogeneration system • Energy efficiency: 85% (Generating efficiency: 20%, Exhaust heat recovery: 65%) • Target: 235 thousand units in 2010

Trademark of Eco-Will

16 Fuel Cell

• Target: 2.2 GW (including 1.2 GW for residential use) in 2010

• Apr. ’05: Tokyo Gas Co., Ltd. installed the world’s first commercial PEFC.

• Efforts of gas companies and FC manufacturers: - Lower cost and higher durability

• R&D for SOFC

Panasonic Model (1 kW PEFC) 17 Residential High-efficiency Water Heater

• “Eco-Jozu,” a condensing water heater

Total efficiency • Heat efficiency: 95% Exhaust heat (50-80˚C) 95% • Target: 350 million units in 2010 Heat exchanger 2 10-15% Efficiency

Heat exchanger 1 80% Efficiency Ｂｕｒｎｅｒ

Air

Gas

Hot Water Drainage 18 Gas Air Conditioning

◆ 22.3% of the entire installed capacity of air conditioners nationwide (as of fiscal ’04, excl. residential use)

(million refrigerant ton) Diffusion of gas air conditioning 14 11.61 million RT 12 11.10 10.02 10.58 10 9.40 3.14 Absorption Chiller 8.87 2.57 2.85 1.98 2.28 8 1.73 6

8.25 8.47 Gas Heat Pump 4 7.14 7.42 7.74 8.01 2 0 '00 '01 '02 '03 '04 '05 (FY) Source: The Japan Gas Association

19 Natural Gas Vehicle

◆ 27,605 NGVs and 311 refueling stations

(natural gas rapid (number of NGVs) Diffusion of NGV and refueling stations refueling stations) 30,000 350 27,605 a Number of NGVs 288 311 300 25,000 Natural gas rapid b refueling stations 270 24,263 20,638 250 20,000 224

16,561 200 181 15,000

138 12,012 150

10,000 107 100 82 7,811 62 5,252 5,000 47 34 3,640 50 24 12 2,093 6 6 759 1,211 243 421 0 49 123 0 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 (FY)

Source: The Japan Gas Association 20 Establishment of Supply Safety

• Earthquake countermeasures • Standardization of safety devices

- Facility measures : - Flame failure prevention device - PE pipe, Intelligent gas meter - Small water heaters with a function to prevent incomplete combustion

Polyethylene pipe Intelligent gas meter - Emergency measures : - Area subdivision - Recovery measures :

- Establishment of quick relief Image: Ultra-safe cooking stove system industry-wide

21 Conclusion --- Our Challenge

Gas Utilities’ Measures

In the upstream sector In the downstream sector

◆ Promoting wide-area and ◆ Ensuring a long-term stable advanced use of natural gas supply of LNG

Contributing to improvements Enhancing the Contributing to energy in energy security conservation and reductions in value for CO2 customers

◆Reducing price by increasing the efficiency of business management ◆Maintaining and improving levels of security and services

We will continue to raise the value of natural gas for customers. 22 Fin.

23 MEMO

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