Tokyo Gas Co., Ltd. Business Information, Profile, and History

Company Perspectives:

The Tokyo Gas Group must aspire to be a company that contributes to socioeconomic advancement, pleasant living, and the mitigation of global environmental problems through its supply of environment-friendly natural gas and other energy, as well as related energy-value added services. Tokyo Gas will thereby continue to move forward on the basis of the solid trust placed in it by its customers, shareholders, and society as a whole.

History of Tokyo Gas Co., Ltd.

With nearly nine million customers, Tokyo Gas Co., Ltd. operates as Japan's largest gas company. The firm distributes gas to the Kanto region, the largest region in Japan, which accounts for 40 percent of the country's gross domestic product. The firm imports liquefied natural gas (LNG) from Alaska, Australia, Brunei, Indonesia, Malaysia, and Qatar, receiving it at three major terminals in Negishi, Soedugaura, and Ohgishima. Deregulation of Japan's gas industry began in the late 1990s, forcing Tokyo Gas to cut costs, restructure, and diversify into such areas as the retail electricity market.

Origins

The use of city gas in Japan began in 1871, when a gas-powered street lamp was unveiled in Osaka. Tokyo's first gas lamps appeared three years later, when 85 street lamps were installed as lighting in the vicinity of the Diet (Japan's governmental national assembly) building. One of the main proponents of city gas in Tokyo was Eichi Shibusawa, Japan's leading industrialist at that time. Shibusawa was a central figure in Japan's extremely rapid economic growth following Commodore Perry's mission of 1853-54. Perry threatened to use the fire-power of the U.S. navy unless Japan opened its doors to the West. This event initiated a rapid assimilation of the best of Western culture and technology into Japan via young scholars sent abroad by the newly unified Japanese government. Shibusawa and the national authorities saw gas as a safe replacement for oil lamps common in Japanese cities. These had traditionally been a source of countless blazes. Gas lighting was spectacularly displayed at a technology exhibition in Ueno, Tokyo, in 1887, when a giant chrysanthemum--a symbol of imperial Japan--made of numerous gas power lights was unveiled.

Growth Under Shibusawa: Late 1800s to Early 1900s

Shibusawa was named head of the City of Tokyo's gas board in 1879, and in 1885, when the government sold the business and licenses to supply gas, he became the first chairman of Tokyo Gas. With only 343 customers and 61 employees, Tokyo Gas was very small, but Shibusawa had ambitious plans for the company. The number of users was increasing daily and the company could not meet the demand for gas in northern areas of Tokyo. The initial priority was the installation of a gas pipeline and the construction of a gas production plant. A new factory containing a coal-operated retort began operation in 1889 in what is now the Kogawa part of Tokyo. By 1893, the facility was capable of producing 30,000 cubic feet of city gas per day.

The business was growing to such an extent that in 1895 city authorities set up a gas tax office. Initially, Tokyo Gas was taxed according to the number of gas lamps it operated, and the yearly tax per lamp was set at ¥0.06. Accompanying the increase in the number of customers, the company's tax bill was mushrooming. Shibusawa persuaded the city tax authorities to adopt the more sensible policy of taxing the company on its profits.

Part of Tokyo Gas's strategy was to exploit gas for as many uses as possible. Shibusawa formed Tokyo Gas Railway Company in the hope of building a network of gas-powered trains in the city. The advent of electric power as a far safer and more convenient source of power for trains dashed these plans before they were seriously underway. Shibusawa was, however, instrumental in the spread of electricity into Japan and set up one of the first electric train companies.

Victory over China in the 1897 Sino-Japanese War was a key factor in the economic and military development of Japan. The nation joined the Western powers as a major force on the world stage. The war spurred even faster industrial development, and Tokyo Gas was likewise expanding. Company headquarters were moved to a new building in Kanda in central Tokyo. In 1898, a third gas factory was completed in Fukagawa that was capable of producing 250,000 cubic feet of gas per day.

During the late 1890s and early 1900s, electricity was gradually replacing gas as a source of power for lighting. The fastest growing use of gas was as a fuel for cooking and home heating. The company's head of technology, Goro Nakagawa, returned from a fact-finding tour of the United States to report on a range of new cooking devices powered by gas. The decision was made to concentrate marketing efforts in this area. In 1900, the company stated its four main business areas as gas production and supply, gas by-product supply, production and sales of gas appliances, and the development of business related to the gas industry.

In 1906, Japan again experienced victory in a war, this time over Russia, which once more boosted the economy. The demand for gas in Tokyo was booming, and Tokyo Gas opened nine new sales offices around the town. By 1908, 23 years after its founding, the company supplied 100,000 homes with gas, operated 825 kilometers of pipeline, and supplied 1.2 billion cubic feet of gas per year. Of this total, 80 percent was consumed by household customers, with the remainder supplied to industry.

Indeed, business was so good that a rival Tokyo-based gas company, Chiyoda Gas, was started up in 1908. The two companies, in an attempt to attract the same base of customers, began a price war. This price war was a major headache for the management of Tokyo Gas, and in 1911 both companies signed a pricing agreement in order to avoid financial disaster. Chiyoda Gas was so weakened financially that it eventually went bankrupt, and its assets were taken over by Tokyo Gas. By 1913, Tokyo Gas had emerged as the major supplier of city gas in the Kanto region and in that year began supplying gas to the outlying suburbs of the cities of Kawasaki and Saitama.

Depression, Disasters, and War: 1918-40s

Japan experienced an economic depression from 1918 until the late 1920s. Inflation ensued, and Tokyo Gas was forced to raise the price of gas as the price of coal increased. In 1919, the union representing the 560 workers at Tokyo Gas's three production sites in Tokyo demanded higher wages. The number of new customers was no longer increasing, and many current users could no longer afford to be connected to the gas supply network. To add to this situation, in 1923 the Kanto region of Japan experienced a catastrophic earthquake. Forty-five percent of houses using gas were destroyed, leaving only 130,000 connected. The pipeline network was severely damaged, with many leaks and resultant fires. The city of Tokyo was quick to rebuild, however, and with frantic around-the-clock repair work underway, gas supplies were resumed after two months.

By 1926, the demand for city gas began to increase as Japan emerged from depression, and in that year Tokyo Gas began to expand its marketing activities. A questionnaire was sent to each customer in order to ascertain the public's impression of the service offered by the company's representatives. Sixty-five percent of those asked responded by saying the service was excellent. Rival gas companies were emerging, taking advantage of the devastation of Tokyo Gas's supply network in the 1923 earthquake. The company responded by aiming to attract 100,000 new customers within six years. In fact, it achieved double this figure. The new president, Shoshichi Iwazaki, stressed the importance of service to the company's large customer base, and 200 adding machines from the United States were incorporated into the headquarters and sales offices to make the company's accounting more efficient. Furthermore, after a long safety campaign in the company's three production sites, a 100 percent safety record was achieved in 1935.

During the late 1930s, Japan was again moving toward war, and the increasingly powerful military government began to take control of vital industries, of which gas production was one. By 1938, Tokyo Gas had one million users but on orders from the military was urging its customers to conserve gas and use gas appliances only when necessary. The military were interested in the by-products of coal gas production--coal tar, benzene, and ammonia for industrial use--as well as in using gas to power armaments factories. Coal was also in shorter supply as the nation's steel industry consumed increasing amounts. By 1944, at the height of Japan's war efforts, two of Tokyo Gas's three production facilities were designated military suppliers and were in effect run by a representative of the Imperial Japanese Army. To control Tokyo's gas industry, the military authorities merged all the companies within the Kanto region into a single concern. A similar exercise was carried out in other regions of Japan, and eight main gas companies were formed. On March 10, 1945, the U.S. Air Force sent wave after wave of B-29 bombers to destroy Tokyo, sparing only the Imperial Palace. The result was devastating, with 120,000 dead and 260,000 houses destroyed. Tokyo Gas's headquarters building was saved by the work force, who prevented it from being burned to the ground.

Only 22 years after the Great Kanto Earthquake, Tokyo had succumbed to the military might of the United States. Tokyo Gas's infrastructure was a shambles, with fewer than 1,500 houses receiving gas in August 1945. Once again, the city's inhabitants rebuilt Tokyo with amazing speed. This time they were greatly aided by the United States, which was eager to rebuild Japan as a democratic state. By November 1945, the number of houses supplied with gas had risen to 340,000, a number that was growing daily. In the year following the devastation, work began in earnest to reconnect and resupply the city with gas. By early 1946, 55 percent of the prewar level had been achieved. During this time, both the government and industry of Japan was managed by the American occupation forces. General MacArthur formulated the Law for the Elimination of Excessive Concentration of Economic Power to break up the huge Japanese industrial conglomerates that had dominated Japan economically before and during the war. Tokyo Gas came under the management of the occupying powers, with representatives of the U.S. military giving guidance in the early postwar years. In 1949, the gas rationing in place since 1945 came to an end, and Tokyo Gas was free to operate as an independent company.

The Japanese economy recovered swiftly, and by the early 1950s was experiencing rapid growth. Before the war, Japan had relied on Manchuria in China, which was occupied by the Japanese, for a large proportion of her coal. This source became more unreliable and expensive in the postwar years, and the Japanese power companies looked increasingly to crude oil to supply industry needs. Tokyo Gas began a conversion of its Omori coal gas facility to produce gas from oil. In 1954, construction began of a new oil-gas production facility in Toyosu, a project involving the reclamation of land in Tokyo Bay. The huge complex was completed in 1956 and began producing two million cubic meters of gas per day. By 1955, the company was once again supplying one million households. Univac punchcard computers were procured and installed in the headquarters building to monitor customers' consumption. Gas service stations were opened in and around Tokyo, including nine in Yokohama, to accommodate customer enquiries. In 1959, a gas promotion exhibition, entitled Gas in Life, took place to demonstrate how the company produced gas and to display new uses of gas. With the aim of diversifying its sources of raw materials, Tokyo Gas began the purchase of liquid propane gas (LPG) from Saudi Arabia in 1962. In the same year, a 329 kilometer pipeline was constructed to transport 500,000 cubic meters of natural gas daily from a field off Niigata on the west coast of Japan. Unfortunately, the pipeline was severely damaged in an earthquake which hit Niigata two years later.

Japan emerged as an economic superstate in the 1960s. In 1969, Japan's gross national product was second only to that of the United States. A visible contribution made by Tokyo Gas to this success was the completion in 1968 of the world's largest steel gas-storage tank. With a capacity of 200,000 cubic meters and structure made from steel plates 35 millimeters thick, the tank was designed to hold high-pressure gas.

The Import of LNG Begins in 1969

Around this time, the company was developing a technology that would come to dominate Japan's gas industry--the import of natural gas as a liquid, known as liquefied natural gas (LNG). Natural gas had several major advantages over gas manufactured from oil or coal; for instance, once the transport technology was perfected, it became the cheaper alternative; natural gas is also more environmentally friendly than oil- or coal-manufactured gas, both to produce and to burn. The most important factor in its adoption, however, was that both Tokyo Gas and the Japanese government wanted to reduce the nation's dependence on Middle Eastern oil, which had risen to supply almost 70 percent of the nation's energy needs by 1970.

Motivated by these factors, Tokyo Gas, along with Tokyo Electric Power Company, began negotiations with Phillips Petroleum and Marathon Oil of the United States to procure 96,000 tons of LNG per year from fields off Alaska. Supply began in 1969 with the LNG refrigerator ship Polar Alaska docking at the world's first LNG terminal in Negishi in Yokohama. The Sodegaura works on the opposite side of Tokyo Bay began operation as an LNG terminal four years later. Because of the lower energy value of natural gas as compared to manufactured gas (2,000 as opposed to 4,800 kilocalories per cubic meter), it was necessary to convert and inspect the company's network as well as customers' appliances to insure they could adapt to using the new gas. This was done by Tokyo Gas engineers in the early 1970s, and the exercise gave the company the chance to promote and sell its new range of natural gas appliances as well as to inspect its own network.

The oil shock of 1974, which sent the Japanese economy into negative growth, reinforced Tokyo Gas's decision to concentrate on LNG. Sourcing of LNG was expanded to Indonesia, Brunei, and Malaysia, and a computerized loading system was developed for transferring the minus 160 degrees centigrade liquefied gas from ship to storage tank. In 1976, the manufacture of gas from coal at the Toyosu facility was abandoned after 20 years of production.

During the late 1970s and early 1980s, Tokyo Gas sought to present itself as a company that was environmentally aware and concerned with the safety of its factories. In a statement in 1982, it took great pride in the fact that no major accident associated with the transport of the volatile LNG had occurred since the company started using it. The conversion to a 100 percent natural gas supply was completed in 1988. The supply and distribution of LNG was controlled by what the company described as an "intelligent service system" which monitored the gas as it traveled from the supply ship to the consumer's home appliance. Any malfunction was corrected by emergency stations operating around the clock.

Like most other Japanese utility companies, Tokyo Gas had diversified, and the group of companies with Tokyo Gas as the nucleus was informally known as the Tokyo Gas Group. In 1991, 75 percent of the group's sales came from the supply of gas to 7.5 million households in the Kanto region as well as to industrial users. The group's other major business area was gas appliances, which had been manufactured and sold by the company since the early 1900s. In a field related to the refrigeration technology associated with LNG transport, the Tokyo Gas Group was involved in the production of low-temperature chemicals such as liquid oxygen and dry ice, as well as providing a food refrigeration service.

In the early 1990s, the group's profits were reduced by an increase in the price of LNG and rising interest rates. The Tokyo Gas Group continued, however, to be a mainstay of industrial Japan. The firm continued to compete with Tokyo Electric Power as a supplier of energy to the region's population. At the time, Tokyo Gas supplied about a third of Tokyo's residential energy and sought to increase its share through technological developments and the marketing of gas as a source of all home energy needs.

Diversification Amid Deregulation: 1990s and Beyond

In 1993, the company launched a restructuring plan that would reduce the company's workforce while encouraging growth. In order to promote even greater use of natural gas, the firm began providing natural gas production technology to producers in China, a country suffering from significant air pollution due to its high-dependence on coal. Tokyo Gas also teamed up with Petroleum Nasional Bhd (Petronas) in Malaysia to form Gas Malaysia Sdn Bhd, a joint venture designed to develop the country's natural gas supply.

Tokyo Gas closed its Toyosu plant in 1994 and its Tsurumi facility in 1997. Early the following year, a third LNG terminal was launched at Ohgishima. It had the world's first underground LNG storage tank and operated as Japan's first offshore LNG receiving berth.

While Tokyo Gas continued to strengthen its business, the industry around it began to change as a result of deregulation. Starting in 1995, the Japanese government partially liberalized the electric utility industry, allowing independent power producers (IPP's) to sell electric power to the regional companies. Then, in March 2000, these IPP's were allowed to market directly to customers, allowing both foreign and domestic competition in the retail electricity market. At the same time, the gas industry was in the process of deregulating, which in part allowed Tokyo Gas to utilize its profits to diversify (in the past profits were used exclusively to reduce gas rates).

While deregulation brought with it increased opportunities for expansion, it also set the stage for intense competition. In response to its changing business environment, Tokyo Gas launched a new management plan in 1999 entitled Frontier 2007. According to a company press release, Frontier 2007 was based on four goals: business model innovation, construction of the Group's management system, strengthening of the corporate culture, and business expansion into energy-related areas. Management set these goals in place to enable Tokyo Gas to achieve positive financial results and growth as an "energy frontier corporate group."

Deregulation started to significantly change Japan's industry during the early years of the new century. An April 2002 World Gas Intelligence article claimed that LNG businesses were "slashing prices, buying fuel more efficiently, tying up with foreign oil companies, and using new pricing methods." In addition, Tokyo Gas and its competitors pursued diversification opportunities made available by industry deregulation. During 2001, the company moved into the electricity retailing sector when it partnered with NTT Facilities Inc. and Osaka Gas Co. Ltd. to launch ENNET Corporation. Tokyo Gas established subsidiary Tokyo Gas Bay Power Co. Ltd. to build a power plant to generate electricity for sale to ENNET. The firm also sought to expand its LNG capacity by landing key contracts. While the company's LNG requirements were currently filled through 2006, Tokyo Gas was actively pursuing contracts for LNG it would need for 2007 and beyond. During this time period, it procured 7.5 million tons of LNG per year from Alaska, Australia, Brunei, Indonesia, Malaysia, and Qatar. In early 2003, Tokyo Gas announced that it planned to add Russia to that list.

By 2003, Tokyo Gas management was confident that deregulation would continue to bring positive changes to the company and the customers it served. As an "energy frontier company," Tokyo Gas was focused on supplying gas, electricity, heat, and energy services, utilizing natural gas as its core energy source. While competition would no doubt remain intense, Tokyo Gas appeared to have a solid strategy in place to remain successful in the years to come.

Principal Subsidiaries: Tokyo Gas Energy Co. Ltd.; Tokyo Gas Chemicals Co. Ltd.; Tokyo Oxygen and Nitrogen Co. Ltd.; Tokyo Gas Urban Development Co. Ltd.; Park Tower Hotel Co. Ltd.; Kanpai Co. Ltd.; Gastar Co. Ltd.; TG Credit Service Co. Ltd.; Chiba Gas Co. Ltd.; Tsukuba Gakuen Gas Co. Ltd.; Tokyo Gas Engineering Co. Ltd.; TG Information Network Co. Ltd.; Tokyo LNG Tanker Co. Ltd.; TG Enterprise Co. Ltd.

Principal Competitors: The Kansai Electric Power Company Inc.; Osaka Gas Co. Ltd.; The Tokyo Electric Power Company Co. Ltd.

Chronology

• Key Dates:
• 1885: Tokyo Gas incorporates.
• 1913: The company emerges as the major supplier of city gas in the Kanto region.
• 1945: Tokyo Gas's infrastructure is nearly destroyed during the war effort; the company is run by the American occupation forces.
• 1949: Gas rationing ends; Tokyo Gas is free to operate as an independent company.
• 1969: The company begins to procure liquified natural gas (LNG) from Alaska.
• 1988: Conversion to a 100 percent natural gas supply is complete.
• 1998: The Ohgishima LNG Terminal begins operation.
• 1999: The Japanese gas industry starts to deregulate.