1

29/November/2007

The Japan Gas Association

Development of the demandfor gas industry in Japan

2

Energy in Japan

3

Characteristics of Japan’s Energy Situation

� Ratio of natural gas in total primary energy supply islower than that of European countries and the US.

� High dependence on imported energy resources

� Japan’s national energy policies rank natural gas as avery important energy for Japan.

� Objectives of current national energy policies;

“Energy Security” and “Energy Conservation”

� Japan represents 40% of world’s LNG trading.

4

Japan’s Dependence on Imported Energy (2004)

ImportIndigenous

82%

Source: Energy Balances of OECD Countries 2003-2004, IEA

*IEA defines nuclear power as indigenous energy.

18%

� High dependence on imported energy resources

5

Trend of Primary Energy Supply in Japan

14% 14% 14% 14% 14%

0

100

200

300

400

500

600

2001 2002 2003 2004 2005

Others

Hydro

Nuclear

Coal

NaturalGasOil

Source: IEEJ/EDMC, Handbook of Energy & Economic Statistics in Japan 2007

� Total primary energy supply in Japan continues to increase.

(MTOE)

498 504 506 512 522

FY

6

Ratio of Natural Gas in Primary Energy Supply in Japan

14.6%

15.5%23.9%

20.6% 38.1%

24.4% 36.1%

2.9%

13.6% 9.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Japan France Germany Spain Italy U.S U.K China S. Korea Taiw an

Hydro

Nuclear

Coal

NaturalGasOil

Source: BP Statistical Review of World Energy, 2007

� Japan’s ratio of natural gas is lower than that of European countriesand the US.

Japan

7

10%14% 18%

16%

0

50

100

150

200

250

300

350

400

450

500

550

600

650

1990 2000 2030 2030

Hydro, Geothermal andSustainable Energy

Nuclear

Natural Gas

Coal

LPG

Oil

Standard Case Energy Saving Case

� Natural gas is expected to increase its sharefrom 14% (FY2000) to 18% (FY2030)

Japan’s Primary Energy Supply Outlook

Source: Subcommittee on Demand and Supply, Advisory Committee forNatural Resources and Energy, Interim Report 2005

(million kilolitre oil equivalent)

512

588607

536

47%38%

18% 17%

8

World’s Natural Gas Trade

0

100

200

300

400

500

600

700

800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

billion m3

� LNG trade, which is popular in Asia-Pacific region, represents 28% of the world’snatural gas trade.

� Natural gas trade by pipeline is brisk in Europe and North America.

Pipeline

LNG

Source: Cedigaz

28%

9

World’s LNG Trade

Japan

World

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

(Thousand tons)

Source: Cedigaz

Start of LNGImporting

First Oil Shock Second Oil Shock Gulf War

� The world’s LNG trade volume is increasing rapidly.

10

Japan’s Share in World’s LNG Trade (2006 import)

Source: Cedigaz

US8%Others

11%

S.Korea16%

Japan38%

UK2%

Turkey3%

Spain12%

France7%

Belgium2%

Italy1%

� Japan accounts for nearly 40% of the world’s LNG transactions.

11

Current LNG Projects (Long term contract basis)

Alaska

IndonesiaAbu Dhabi

Malaysia

Australia

Qatar

Brunei

Oman

Qatar9.4%

Oman3.4%Abu Dhabi

6.7%

Indonesia28.4%

Malaysia19.4%Australia

21.4%

Brunei9.4%

Alaska2%

64 million ton(FY2006)

� Japan imports LNG from 8 countries/regions.

12

LNG Consumption

35%Power

Generation65%

Source: The Institute of Energy Economics, Japan

(as of 2005)

City Gas

� 65% of LNG is for power generation.

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� Natural gas is a vital energy source both in terms of stable supplyand environmental protection.

Natural Gas in Government’s Energy Policy

Basic Plan for Energy Supply and Demand (Endorsed by the Cabinet in 2003)

Outlook for Energy Supply & Demand for 2030

Kyoto Protocol Target Achievement Plan （Endorsed by the Cabinet on April, 2005)

� The share of natural gas will increase thanks to the spread of distributedpower sources. [2000:13% 2030:16%(Energy-saving case)]

（Summary as of March 2005)

� Natural gas is a clean source of energy that imposes a relatively smallenvironmental load.

� A shift to natural gas should be accelerated with due consideration forthe balance with other energy sources.

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City Gas Industry in Japan

15

100.0

2.8

7.6

43.4

46.2

％

21236176Total

606500,001 or more

16214100,001 – 500,000

92207210,001 – 100,000

98148410,000 or less

TotalMunicipalPrivate

2.8%7.6%

43.4% 46.2%10,000 or less10,001 – 100,000100,001 – 500,000500,001 or more

(Number of Customers)

(as of the end of March, 2007)

� 212 city gas utilities in Japan� 1/6 are run by municipalities� 90% of utilities are medium- or small-sized

Number of City Gas Utilities

16

Source: The Japan Gas Association

0

5

10

15

20

25

30

35

'97 '98 '99 '00 '01 '02 '03 '04 '05 '0621

22

23

24

25

26

27

28

29

30

Industrial

Residential

Commercial

Others

Sales volume (left axis)Number of customers

(million customers)

(FY)

(billion m3) 33.8 billion m3

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

� Gas sales volume increased for the 29th consecutive year.

�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 cleaningstores, 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.

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Gas Sales Volume by Sector and Utilities

*10,000kcal/m3

Source:The Japan Gas Association

Residential9.8 bcm(29.0%)

Commercial4.8bcm(14.2%)

Industrial16.5 bcm(48.8%)

Others2.8 bcm(8.0%)

Total: 33.8 bcm(FY 2006 )

Sales volume by sector (billion cubic meter)

Total: 33.8 bcm*10,000kcal/m3

(FY 2006 )

Tokyo Gas12.3 bcm(36.4%)

Osaka Gas8.9 bcm(26.3%)

Toho Gas3.8 bcm(11.2%)

Saibu Gas0.8 bcm(2.4%)

Others8.0 bcm(23.7%)

Sales volume by utilities (billion cubic meter)

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

� *‘Big 4’ utilities represents 76.3% of total sales volume in Japan

*Big 4: The four biggest utilities are Tokyo Gas, Osaka Gas, Toho Gas and Saibu Gas

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Number of Customers by Sector and by Utilities

Source:The Japan Gas Association

The Japan LPgas Association

Residential94.0%

(26.4million)

Commercial4.6%

(1.3 million)

Industrial0.4%

(0.1 million)Others1.0%

(0.3 million)

26.1 millionTotal*Reference: LPG Customers

Total: 28.1 millioncustomers

(as of Apr. 2007)

（as of April 2007）� The number of natural gas customers is 28.1 million, while that of LPG is 26.1

million

� *The big 4 utilities’ customers account for 71.6% of the nation’s city gas customers.*The big 4: Tokyo Gas, Osaka Gas, Toho Gas and Saibu Gas

TokyoOsaka

TohoSaibu

Big 4: 71.6%

Others: 28.4%

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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

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Gas Utilization forMarket Cultivation

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Gas Fired Cogeneration

- Natural gas fired cogeneration

* Steam turbine not included* The target includes fuel cell cogeneration

3.13

2.422.15

1.901.69

1.511.331.19

1.000.87

3.59

43,263

25,641

709 796 906 1,0141,1511,4001,6732,5785,778

13,785

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 20100

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

a

b

Operating capacity (GW)

4.98GWOperating capacity

Number of systems

FY

Source: The Japan Gas Association

Number ofinstallations

• Diffusion of gas cogeneration systems and the target

4.00

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Residential Cogeneration

• “Eco-Will,” 1kW gas fueled engine cogeneration system

• Energy efficiency: 85%

(Generating efficiency: 20%, Exhaust heat recovery: 65%)

• Target: 175 thousand units in 2010

Trademark of Eco-Will

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Residential High-efficiency Water Heater

• Heat efficiency: 95%

• Target: 2million units in 2010

• “Eco-Jozu,” a condensing water heater

Water

Gas

Hot

Air

Drainage

Ｂｕｒｎｅｒ

Exhaust heat (50-80˚C)

Heat exchanger 2

Heat exchanger 180% Efficiency

Totalefficiency

95%

10-15%Efficiency

24

7.14 7.42 7.74 8.01 8.25 8.47

2.57 2.85 3.14

1.73 1.98 2.28

0

2

4

6

8

10

12

14

'00 '01 '02 '03 '04 '05 (FY)Source: The Japan Gas Association

11.61 million RT10.5810.02

9.408.87Gas Heat Pump

Absorption Chiller

(million refrigerant ton)

Gas Air Conditioning

� 22.3% of the entire installed capacity of air conditioners nationwide(as of fiscal ’05, excl. residential use)

Diffusion of gas air conditioning

11.10

25

31,462

24,26320,638

16,561

12,012

49 123 243 421 759 1,211 2,0933,640

5,252

7,811

27,605

324

138

107

8262

4734

241266

181

224

270

288 311

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '060

50

100

150

200

250

300

350

a

bNumber of NGVs

(number of NGVs)(natural gas rapidrefueling stations)

(FY)

Natural Gas Vehicle

Diffusion of NGV and refueling stations

Source: The Japan Gas Association

� 31,462 NGVs and 324 refueling stations

Natural gas rapidrefueling stations

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Fuel Cell

Panasonic Model (1 kW PEFC)

• 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

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Conclusion --- Our Challenge

In the upstream sector In the downstream sector

Gas Utilities’ Measures

Contributing to improvementsin energy security

� Ensuring a long-term stablesupply of LNG

� Promoting wide-area andadvanced use of natural gas

�Reducing price by increasing the efficiency of businessmanagement�Maintaining and improving levels of security and services

Enhancing theEnhancing thevalue forvalue for

customerscustomers

We will continue to raise the value of natural gasthe value of natural gas forfor customers.customers.

Contributing to energyconservation and reductions in

CO2

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Fin.