Frequently Asked Questions|Investor Relations|OSAKA GAS

Q1．What is the advantage of gas in realizing low carbon society and preventing global warming?: A1．With less emissions of CO2 and NOx than coal and oil and no emissions of SOx, natural gas is considered the most environment-friendly among all the fossil fuels and designated as a fuel for promotion in the effort to realize a low carbon society stipulated in the Basic Energy Plan formulated by the government in June 2010 based on the Basic Act on Energy Policy. It is expected that there will be an accelerated progress in fuel shift to natural gas from oil and other fuels and in the advanced utilization of natural gas.

Q2．How does Osaka Gas procure natural gas? Are there any risks involved in its procurement?: A2．In order to mitigate risks, Osaka Gas imports LNG (liquefied natural gas) from diversified sources, from as many as 6 countries in Middle East, South East Asia and Oceania. About 90% of the company's LNG is purchased on a long-term contract of more than 20 years to secure the stable supply. Osaka Gas also strives to reduce the cost of procurement by investing in overseas gas field developmental projects and in LNG shipping by its own vessels.

Q3．Does the emergence of unconventional gas such as shale gas affect the business of Osaka Gas?: A3．Since Osaka Gas imports LNG, Liquefied Natural Gas, 100% by ship while shale gas is currently transmitted only by pipeline, the emergence of unconventional gas doesn't directly affect Osaka Gas business at this point. If the unconventional gas starts to be imported to Japan, that will give Osaka Gas more options of procurement of LNG for cheaper prices.

Q4．What is the situation of gas business deregulation?: A4．The gas retail market deregulation has been implemented in phases and it is expanded to customers with annual gas consumption of more than 100,000m3, accounting for 60% of the market on a volume basis. Since the market is deregulated, there have been some new players in the gas market besides Osaka Gas.

Q5．What is gas cogeneration system?: A5．It is a system to generate power with gas at customers' site equipped with recovery system of heat from the generator to provide hot water and steam. While the energy efficiency of the generator alone is mere 40%, the generation system with heat recovery achieves energy efficiency from 70 to 90%. Cogeneration system has a higher total energy efficiency than power generation located far from customers due to the loss of power on the transmission lines. Thanks to the technological advances for downsizing and higher efficiency, more cogeneration systems have been installed at small customers including convenience stores, fast food restaurants, and households. Osaka Gas introduced gas cogeneration systems called EcoWill and EneFarm to the household customers.

Q6．Why does Osaka Gas engage in overseas business?: A6．Given the increasingly severe gas business environment with decreasing population and fiercer competition among energy companies, Osaka Gas explores new income sources by globally developing natural gas related businesses. This secures stable and economical LNG procurement and gives advantages to domestic gas business. Having engaged in overseas business since 1990, Osaka Gas has invested in overseas business operations of LNG terminals and IPPs, Independent Power Producers. With stable domestic demands and know-how of gas business, Osaka Gas develops its international businesses successfully.

Q7．Why does Osaka Gas engage in overseas business?: A7．Given the increasingly severe gas business environment with decreasing population and fiercer competition among energy companies, Osaka Gas explores new income sources by globally developing natural gas related businesses. This secures stable and economical LNG procurement and gives advantages to domestic gas business. Having engaged in overseas business since 1990, Osaka Gas has invested in overseas business operations of LNG terminals and IPPs, Independent Power Producers. With stable domestic demands and know-how of gas business, Osaka Gas develops its international businesses successfully.

Q8．Why is Osaka Gas engaged in non-gas businesses? Isn't it over-diversified?: A8．Pursuing stable business development, Osaka Gas' businesses are focused in three main fields: real estate business developed from the use of self-owned land, IT business started from use of IT system for gas business, and advanced materials business developed from application of coal chemical technology. Osaka Gas also focuses on exploring new growth opportunities through application of our technologies and know-how and strategic alliances. We continue improving shareholders' value through our group operations as we integrate and restructure our affiliated businesses by looking at management indices such as SVA (shareholder value added) and capital costs.

Q9．Doesn't the aggressive investment approach create more interest-bearing debts?: A9．Osaka Gas boasts a high standard of financial stability with its equity ratio of about 40%. We are planning investments of 1.5 trillion yen in total over the 12 year period, which we don't think will damage our strong financial base. With the target of interest-bearing debt to equity capital to be 1 to 1 and the equity ratio of more than 40%, Osaka Gas intends to maintain its sound financial standing.

Q10．How do foreign exchange rate and oil price affect the balance sheet of Osaka Gas?: A10．Since the introduction of the Fuel Cost Adjustment System, in which gas price follows the foreign exchange rate and oil price, the balance sheet of Osaka Gas has not been affected by foreign exchange rate and oil price. The Fuel Cost Adjustment System may, however, cause a brief discrepancy in the company's accounts due to the time lag of the maximum of 6 months until foreign exchange rate and oil price are reflected on gas rates.