ESSENCE OF OUR SERVICE IS HEAT, NOT THE HEATER"(Nihonkai Gas)

JFS Newsletter No.14 (October 2003)
"TOWARD A SUSTAINABLE JAPAN - CORPORATIONS AT WORK" ARTICLE SERIES Article No. 6
http://www.ngas.co.jp/ (Japanese only)

City gas is an essential energy source in the typical Japanese household today. Looking around the house, you will see many gas appliances--the cooking stove, the hot water supply system, the oven, the fan-driven heater, the heated floors, etc. In fact, the proportion of energy provided by this gas has been on the rise over the last 30 years in Japan.

Table: Energy consumption by energy source in the household sector
	1973	1990	2000
Electricity	22.5%	32.0%	33.9%
City gas	22.9%	25.0%	33.9%
LPG	14.3%	15.0%	25.0%
Kerosene	32.8%	27.0%	14.1%
Coal	5.0%	0.1%	0.0%

(More information at http://www.japanfs.org/en/mailmagazine/newsletter/pages/027761.html)

From an environmental perspective, what would we need to consider if we were in a business of providing this popular form of energy? For one thing, we need to reduce the emissions of CO2, NOx, SOx, and waste generated at each stage of the entire process: excavating and processing the raw material, ocean transportation, manufacturing at the plant, ground transportation, and consumption. For the other thing, we need to think of ways to turn the environmental challenge into an opportunity to increase service value to the users.

After all, what is the essence of providing city gas? In this newsletter, we would like to introduce an initiative of Nihonkai Gas Co., which has pondered this question and is trying to create a win-win-win business model for everyone involved--the customer, the company and the Earth.

Nihonkai Gas, founded in 1942, is a Japanese company providing gas-related services, including city gas and LPG (liquefied petroleum gas), to about 110,000 households around Toyama Prefecture, located in the northwest part of Japan. Providing the service around the region, Nihonkai Gas's annual sales in 2003 are about 9 billion yen per year (about U.S.$80 million) with 250 employees, and 21 billion yen (about U.S.$190 million) per year on a consolidated basis (including 600 employees in all group companies).

Note: City gas, used by about 54 percent of all households in Japan, is piped through underground gas lines. Nihonkai Gas is currently using naphtha and LPG as its raw materials, but is planning a complete shift to more environment-friendly natural gas during the period 2004 to 2007. LPG, used by about 60 percent of all households, is supplied in tanks, since LPG can be easily vaporized and liquefied as well as stored and transported.

Realizing their responsibility of providing natural resources that also happen to be finite, they are perhaps more aware than other businesses of the importance of promoting environmental conservation activities. First and foremost, Nihonkai Gas works to save energy and reduce environmental impacts throughout each of their processes--the gas manufacturing and supply processes after receiving the imported raw material, as well as every-conservation when gas is consumed by users.

Based on such daily and essential activities, they are trying to make a business case with cogeneration and decentralized power generation. Gas cogeneration involves an energy provision system that reduces CO2 emissions by utilizing both generated power and the exhaust heat to save energy. The company's unit's overall energy efficiency approaches 70 to 80 percent, using gas engine in sending gas into its underground pipeline and utilize the engine's exhaust heat for air conditioning and heating water.

While working on the above activities and initiatives, the company started to reassess its sales of gas appliances. Take the case of the fan heater. This gas appliance is in a sense a seasonal product, given that it is useful during cold winter but useless during summer. But just like electric appliances, models change as technology improves. If the company tries to sell new models with each model change, it will result in increased material use and waste after consumers dispose of their older units. There is also a problem of storage for a customer, besides the problem of wasteful resource use from the environmental perspective.

The company started a service to rent fan heaters, on the grounds that what their customers really want is HEAT, not HEATERS. When the weather warms in the spring and heating is no longer needed, the company takes back the fan heaters and stores them in its warehouse, after technicians have completed maintenance. It is thought that this thorough maintenance will prolong the working life of fan heaters longer than if kept at home.

The rental fee is 3,000 yen (about U.S.$25) for one season. In their first year of service in the winter of 2000, all 150 units for rent were fully booked immediately. Due to the high demand, the company eventually rented out 250 units. When the company collected the fan heaters in the spring, a high percentage of customers placed reservations to continue the use of the service for the next season. The customer base has been increasing steadily. In 2002, the number of units rented reached 437, with a "repeater" ratio of 71.7 percent. In 2003, the number reached 442 and the repeater ratio increased to 76.2 percent.

Mr. Hachiro Nitta, president of the company, suggests that one of the keys for success in this kind of shift from "material to services" was a heightened awareness on the part of the employees. In this case, when the idea was first introduced, many employees responded negatively on the grounds that it would undermine sales of fan heaters, priced at 30,000 yen (about U.S.$270). But such opinions eventually disappeared as they considered the key question: What does a fan heater mean for a customer? They realized that after all, the appliance itself was just a physical product, but that the essential value to the customer was warmth during the cold winter.

Natural gas is a finite natural resource and cannot be used forever. Yet we can also realize as Nihonkai Gas did that in the long run it is just used as a means to provide "warmth." Some experts have pointed out that the underground pipelines that now carry natural gas may play a useful role in an age of hydrogen-based energy in the future. "Our environmental initiative is at an early stage," says Nitta, "but I believe a new business model will eventually emerge from our everyday efforts to make environmental awareness come as second-nature."