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1 1. Characteristics of Hokkaido

1-1. Geographical and climatic characteristics of Hokkaido ■Situated in the northernmost part of Japan ⇒ lat. 41 to 45 degrees north ■Area: 83,000 m2 (approx. 22% of the total area of Japan) ■Population: 5.57 million (approx. 4.4% of the total population of Japan) ■Coldest region in Japan; the entire prefecture is a heavy snow area ⇒ Sapporo: Mean temperature: 8.5ºC; mean snowfall: 625 cm

Changes in temperature and precipitation (Sapporo)

Mean Precipitation temp.

Jan. Feb. Mar. Apr. May June July Aug, Sept. Oct. Nov.Dec.

2 1. Characteristics of Hokkaido

1-2. Energy supply/demand conditions in Hokkaido ■High ratio of crude oil/petroleum products ⇒ 63.0% (48.1% nationwide) ■Low ratio of natural and city gas ⇒ 1.6% (13.9% nationwide)

Breakdown of total supply from primary energy (2004)

0.7

Crude oil/petroleum products Coal/coal products Natural gas Nuclear power Japan 48.1 21.4 City gas 10.5 3.5 (610.8 million kl） 13.9

1.9 High dependence on petrol Low ratio of natural gas (target oil dependence under the 1.6 New National Energy Strategy: 40%) 1.9

Hokkaido 63.0 20.6 7.0 3.8 (28.45 million kl)

2.2

0% 20% 40% 60% 80% 100%

Crude oil/petroleum products Coal/coal products Natural gas/city gas Nuclear power Renewable/unused energy Black liquor Hydraulic power 3 Source: Energy Supply/Demand Conditions in Hokkaido (Hokkaido Government) 1. Characteristics of Hokkaido

CO2 emissions in Hokkaido

1.3 times the national average Hokkaido Japan Increase from FY Increase from FY FY 2003 1990 FY 2003 1990

Total CO2 emissions (10,000 tC) ２，０４７ １６．９％ ３４，３３６ １２．２％ Per capita emission (tC/person) ３．６２ １６．８％ ２．６９ ＋８．７％

■ Breakdown of CO2 emissions by sector (FY 2003)

C民生ivilian (（re家庭）sidential) C民生ivilian （(b業務）usiness) Tr運輸ansport Industry Other Japan 産業 その他 全国 13.5 15.6 20.7 37.8 12.5

High ratio of the residential sector

C民生ivilian (（re家庭）sidential) 民生Civilian（ (業務）business) Tr運輸ansport Ind産業ustry そOの他ther 北海道Hokkai 20.5 12.7 20.9 37.1 8.7 do

0% 20% 40% 60% 80% 100%

・ ・Significantly higher CO2 emissions than the rest of Japan due to high dependence on petrol and coal ・ Significantly higher CO2 emissions than the rest of Japan due to high dependence on petrol and coal ・TThhee l evelevel lof of efforts efforts to to re redduuccee e ennvvirioronnmmenentatal lb buurdrdeensns (c (coompamparedred w witihth t hethe ba bassee yea year)r) t etenndsds to to be be lower than in the rest of Japan) lower than in the rest of Japan) 4 Source: Greenhouse Gas Emissions in Hokkaido in FY 2003 (Hokkaido Government) 1. Characteristics of Hokkaido

1-３. The city gas industry in Hokkaido ■Ten city gas companies (nine private and one public) ■No. of customers: 876,000; gas sales volume: 500 million m3; diffusion rate: 57% ■Conversion from city gas to natural gas in Hokkaido will be completed this December (partially LPG) . ■Natural gas is received from the Yufutsu Gas Well via pipelines and LNG (using coastal vessels in the Hakodate area) .

※Year of completion for conversion to natural gas (approx. 880,000 customers) ※Supply area of Hokkaido Gas

The central Hokkaido block (Sapporo, Chitose, Ishikari, Otaru, Tomakomai, etc.) Asahikawa Gas Hokkaido Gas (Kitami) receives natural gas from the Tomakomai Yufutsu area via pipelines.

Hokkaido Gas (Otaru) Iwamizawa Gas

Asahikawa Gas Hokkaido Gas (Sapporo) Obihiro Gas (Ebetsu) Kushiro Gas Hokkaido Gas (Chitose) Tomakomai Gas Yufutsu Gas Well Muroran Gas (Japan Petroleum Exploration Co., Ltd.) LNG liquefied in Yufutsu is transported to Hokkaido Gas the Asahikawa, Obihiro, Kushiro and Kitami The Hakodate area receives (Hakodate) areas in railway containers (to the Muroran LNG via the North Pioneer 5 and Iwamizawa areas in lorries) . coastal tanker. 1. Characteristics of Hokkaido

1-４. Natural gas demand in Hokkaido

Millions of m3 Increased by a factor of 1.6 600 over ten years 500

400

300

200

100

0 19971998199920002001200220032004200520062007

Industrial users' needs for natural gas Promotion of energy policies in Hokkaido (2007 survey by the Hokkaido Bureau of Economy, Trade and (Excerpt from a 2007 report by the Hokkaido Bureau of Industry) Economy, Trade and Industry) Estimation of the need for conversion to natural gas by region ◆ Thousands of m3 An increase in the introduction of natural gas is expected due to potential need for natural gas in Hokkaido, future increases in energy demand, the need to ensure energy security, global environmental issues, etc.

◆Strategies including the establishment of a supply Southern Hokkaido Kamikawa infrastructure in Hokkaido with a view to importing Kushiro/Abashiri Tokachi LNG are necessary to meet future needs for natural gas by Iburi Central Hokkaido industries, etc., since most natural gas in Hokkaido is currently supplied by the Yufutsu Gas Well. 6 Specifically Future introduction Already introduced considered considered 2. Overview of Hokkaido Gas Co., Ltd.

２-１. Company profile ■Establishment: 1911 ■Supply areas: Sapporo, Otaru, Hakodate, Chitose, Ishikari, Kitahiroshima, Eniwa, Hokuto and Kitami (City gas is supplied to nine cities.) ■No. of customers: 563,000 ■Volume of gas sales: 398 million m3 ■Diffusion rate: 55.3% ■Sales volume: ¥52.4 billion ■Capital: ¥5.04 billion ■No. of employees: 664

Kitami Sapporo/Otaru/Chitose/Ishikari/Kitahiroshima/Eniwa

Hakodate/Hokuto

7 2. Overview of Hokkaido Gas Co., Ltd.

２-２. The Progress 2020 Medium-term Management Plan

■Developed in April last year to promote the expansion of naturalgas usage in Hokkaido ■Management goals

○Volume of city gas sales: 700 million m3 in FY 2020 (398 million m3 in FY 2008)

○ Total sales: ¥100 billion in FY 2020 (¥69 billion in FY 2008) ※Consolidated

■ Four priority tasks: ①①SSteadteadyy p prorommootitoionn o of fs saafefetyty enh enhaanncceemmeentnt

②②CCononssooliliddaatitonion o of fr ereggioionnallallyy c culultitvivaatedted s saaleless

③③EEsstatabblilsishhmmenent to of fa a g gaass s suuppplplyy ba bassee f rforomm a a l olongng-t-etermrm s statanndpodpointint

④④PrProommootiotionn o of fg grorouupp s strturucctuturalral r erefoformrm

8 ２．Overview of Hokkaido Gas Co., Ltd.

Priority task ③:Establishment of a gas supply base from a long-term standpoint Significance of constructing an LNG base in Hokkaido

■ Establishment of an energy supply base in Hokkaido (expansion ofthe use of natural gas) ■ Improved security of supplies through diversification of supply sources ■ Long-term infrastructure development to prepare for future increases in demand (ensuring supply capacity)

Scheduled construction site Ishikari Bay New Port

Ishikari Sapporo

9 ２．Overview of Hokkaido Gas Co.,Ltd.

Overview of the Ishikari LNG base

・Construction site: ShikoChuo 4-chome, Ishikari (East side of Zone No. 3, central wharf of Ishikari Bay New Port)

・Site area: approx. 100,000 m2

・Main facilities： LNG tank (180,000 KL×1) ↑Artist's rendering of the PC-type LNG vaporizer above-ground LNG tank Receiving berth for ocean LNG vessels Shipping berth for coastal LNG vessels Truck shipping facility, etc.

・Scheduled construction term： Construction commenced in August 2008 Operation to be started in December 2012

3 ・Total project cost: approx. 40 billion yen 145,000-m -class MOSS-type LNG vessel 10 (artist's rendering) ２．Overview of Hokkaido Gas Co., Ltd.

Future vision of the natural gas value chain Material Transport Sales/service procurement

Yufutsu Gas Well Pipe network Customers ・Use in kitchens, hot water supply, air conditioning, power generation, etc. ・Safety inspections, maintenance service, etc. ・Energy solutions, etc. Ishikari LNG base LNG railway container Gas company, heat supplier LNG truck transport

Hakodate coastal On-site supplier LNG can be supplied LNG base Coastal LNG vessel directly to on-site facilities at factories, etc. Optimal combination of natural Diverse forms of LNG supply in Results of the spread of natural gas produced in Hokkaido and addition to pipelines gas usage: at the LNG base (complete (diversification of supply means and ◆ Reduction of environmental burdens supply base/mutual improvement in realization of a wide-area supply system) in Hokkaido ◆ value) Contribution to stable energy supply 11 3. Specific Details of Sales Strategies

３-１. Status of the gas market ■Volume of gas sales

After a long period of year-on-year increases in the volume of gas sales thanks to rising commercial and industrial demand, the figure decreased (by 0.6%)in FY 2008 compared to the previous period for the first time in 61 years due to economic stagnation and high winter temperatures.

Changes i【nガス the販売 vo量luのm推e移】 of gas sales

販 450

)

売3 398 量 398 i 400 362 百 万 5.0% ? j 350 332 9.3% 314 300 17.1%

250 V o lu m e f s a l ( il li n

200 40.0% 150 医療用 Medical 100 P公用ublic I工業用ndustrial 50 28.6% C商業用ommercial R家庭用esidential 0 2004 2005 2006 2007 2008 FY年度 12 3. Specific Details of Sales Strategies

Examples of advanced natural gas usage

Regional air-conditioning High-efficiency central High-efficiency gas systems heating turbine power generation

Natural gas co-generation Natural gas vehicles Household fuel cells 13 3. Specific Details of Sales Strategies

３-１.Status of the gas market

■Number of customers/diffusion rate

The number of gas customers is decreasing yearly as the number of removals associated with the demolition of buildings and switching to other energy sources exceeds the number of new customers. The diffusion rate has decreased by 6.2% in the last five years.

Changes in the 【nおum客beさまr 件of数 cu・普及stom率の推ers/d移】iffusion rate

件 570 64% 普 数 567 及 率 （ 566 千 61.7% 565 62% 件 563 ） 60.3% D i ff u s io n r a te 59.8% 560 60%

N o . f c u s t m e r ( i n h ou a ds 555 555 58% 56.2% 550 550 55.3% 56%

545 54% N需o要. o家件数f customers D普iff及率usion rate 540 52% 2004 2005 2006 2007 2008 年度FY 14 3. Specific Details of Sales Strategies

Competition with other energy sources

Kerosene

●Kerosene accounts for more than 90% of heat sources for domestichot water supply and heating ⇒ Kerosene culture

● Increase of kerosene prices to more than ¥130 per liter last year (around ¥60 at present)

→ Wild fluctuations in the price of kerosene –which is essential for living –affected consumer perception. People are gradually becoming less dependent on kerosene.

Electricity ●The amount of all-electric housing is increasing yearly, and now accounts for morethan 60% in the market for newly constructed housing.

● 134,000 households in total ⇒ Approx. 5% of all stock

● Increased share of IH cook-tops

15 3. Specific Details of Sales Strategies

３-２. Strategies for gas market expansion Progress 2020 priority task ②:Consolidation of regionally cultivated sales ●Promotion of the spread of natural gas for residences and small-scale businesses to establish business/income bases for sustainable growth

●Contribution to CO2 emissions by customers through the spread of energy-saving devices/systems for effective use of environmentally friendly natural gas

Residential

●Market for newly constructed buildings: maintenance of the sharefor condominiums and increase of the share for detached housing ●Market for existing buildings: promotion of the conversion of fuel to natural gas with focus on hot water supply and heating Industrial

●Sales promotion through the consolidation of sales for a varietyof medium-and small- scale businesses and cooperation with the Integrated Regional Channel ●Consolidation of proposals on effective energy use through solution sales, promotion of energy service provider (ESP) and energy service company (ESCO) projects 16 3. Specific Details of Sales Strategies

Progress 2020 priority task ②:Consolidation of regionally cultivated sales –target volume of gas sales 百万㎥ 3 Thousands of cust千件omers 1000 Millions of m 600

おNo客. oさf cまus件数tomers 900 ５６568８,0千件00 556363千件,000 800 ５５２552,0千件00 ７００ 550 700

600 ４９０ 500 500 500 ３９８ 400

300 業Bu務用siness 365 284 450 200

100 Residential 200 家庭用 125 113 0 400 20Res08ults年度実績 for FY 2008 2T0ar12get年度目標s for FY 2012 Up～ to2 F0Y20 2020年度 17 3. Specific Details of Sales Strategies

３-３. Improvement of sales and service systems Restructuring of the sales/service system through the IntegratedRegional Channel

●Review of the existing sales system for residential use by the 11 service shops of 8 companies in the Sapporo area, and establishment of 4 Integrated Regional Channels (January 2010)

●Promotion of one-stop services for end users as a basis for regional sales (Management of sales, construction and maintenance in an integral manner, consolidation of contacts with customers) ●Establishment of a system to develop natural gas demand mainly in the residential and small- business sectors

Consolidation of the sales system by repositioning the workforceafter completion of conversion to natural gas ● As the Hokkaido Bloc Joint Project for Caloric Value Conversion(to which the company dispatches employees) will finish at the end of this year, the company’s entire workforce will be repositioned in January 2010 to consolidate the sales system.

18 3. Specific Details of Sales Strategies

３-４. Development/spread of energy-saving devices and systems For detached housing Promotion of the spread of latent heat recovery-type gas central heating systems For condominiums ■ Heat efficiency can be improved Comparison of heat efficiency dramatically by recovering and Heat efficiency for hot water supply using waste exhaust heat Heat efficiency for hot 95% water supply 80%

Secondary heat exchanger Secondary heat Heat efficiency exchanger for heating Conventional hot water Extracts heat 89% Exhaust (which was supply/heating Approx. previously 50 –80ºC wasted) from Eco-Jozu/FACT vapor in the Primary heat exchanger exhaust gases. D r a i n

neu t r a li z er Burner Contribution to CO2 reduction Fan

CO2 reduction of approx. 21% or 430 kg a year (compared with the D r a in ge H o t w a er C o l d w a t er conventional type) 19 3. Specific Details of Sales Strategies ３-４. Development/spread of energy-saving devices and systems

Promotion of the spread of Eco-Will (a residential-use cogeneration system)

Comfort Economic efficiency Environmenta l performance 85.5% energy use rate! High energy-saving performance

Mechanism of Eco-Will

Electricity

High energy-saving

Waste can be achieved by Natural Hot water heat supply gas effective use of waste heat from Heating power generation Gas engine power P o w e r gene a t i on H o t w a e r s up p l y / h ea i ng for heating and hot generation unit Hot water (outdoor installation) water supply supply/heating unit using waste heat 20 (indoor installation) 3. Specific Details of Sales Strategies

３-４. Development/spread of energy-saving devices and systems

Promotion of the spread of the Double Generation system Blessing of the skies = to leverage the blessings of the skies and the earth sunlight Realization of a lifestyle that is friendly to both the global environment and family budgets ●Energy costs can be reduced by combining Eco-Will and solar power generation. This is Electricity economically advantageous as excess power can be sold. ● A rational system that reduces power consumption through the optimal combination of electricity and gas Waste heat Hot water ●The Double Generation system supply Heating further increases the CO2 reduction effect. Blessing of the earth = natural gas

21 3. Specific Details of Sales Strategies

３-４. Development/spread of energy- saving devices and systems Efforts for R&D and commercialization of Ene-Farm technology (fuel cells for residential use) for cold regions

●Joint research with Hokkaido University (2001 –) ●Participation in NEF's experimental study (2002, 2003) ●Participation in METI's large-scale demonstration project (2005 –2008) ●Joint development with manufacturers (Ebara Ballard, Panasonic) (2005 –) ●Acceleration of R&D related to devices designed for cold regions with the goal of introduction to the market

22 3. Specific Details of Sales Strategies

３-５. Future tasks

●Stop the downward trend in the number of customers and the diffusion rate → Halt conversion to other energy sources (electricity, LPG), expand market share for use in newly constructed houses

● Expand the volume of gas sales for use in existing residences → Promote fuel conversion targeting demand for hot water supply/heating by kerosene

Paradigm shift from kerosene culture to natural gas culture

23 ４．Conclusion

Characteristics of Hokkaido Characteristics of Hokkaido HHookkkkaaididoo G Gasas

○High dependence on oil ○ Establishment of gas supply bases

・61% of primary energy sources ・Opening of a large LNG base (December (48.1% nationwide) 2012) ・Kerosene accounts for more than ○Promotion of community-based sales 90% of heat sources in domestic hot ・Integrated Regional Channel (January water supply/heating. 2010) ※Share of natural gas in primary energy sources: 1.6% ○Development of products suited to the characteristics of cold, snowy regions ○ Per-capita CO2 emissions are 1.3 times the national average.

RReaealilizzaattiioonn ooff aann eennvviirrononmmeennttaallllyy ffrriieennddllyy ssoocciieettyy iinn HHookkakkaiidodo bbyy eexxppaannddiingng tthhee uussee ooff nnaattuurraall ggasas

24