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India’s first gas exchange: what it is, and how it will work

The IGX is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs

Written by Karunjit Singh , Edited by Explained Desk | New Delhi | Updated: June 19, 2020 9:23:04 pm
 Indian Gas Exchange, India's first gas exchange, IGX launch, india gas trading, natural gas trading, indian express explained IGX officials said that a highly liquid gas exchange, which prices gas fairly may lead to the government stepping away from pricing domestically produced gas. (Reuters Photo/File)

India’s first gas exchange — the Indian Gas Exchange (IGX) — was launched on Monday. The exchange is expected to facilitate transparent price discovery in natural gas, and facilitate the growth of the share of natural gas in India’s energy basket.

How will this exchange work?

The IGX is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs —Dahej and Hazira in Gujarat, and Kakinada in Andhra Pradesh.

Imported Liquified Natural Gas (LNG) will be regassified and sold to buyers through the exchange, removing the requirement for buyers and sellers to find each other.

“This will mean that buyers do not have to contact multiple dealers to ensure they find a fair price,” Rajesh Kumar Mediratta, director of IGX, said.

The exchange also allows much shorter contracts – for delivery on the next day, and up to a month – while ordinarily contracts for natural gas supply are as long as six months to a year. This, experts say, will allow buyers and sellers greater flexibility.

Will domestically produced natural gas also be bought and sold on the exchange?

No. The price of domestically produced natural gas is decided by the government. It will not be sold on the gas exchange.

However, following appeals by domestic producers that the prices set by the government are not viable given the cost of exploration and production in India, Petroleum Minister Dharmendra Pradhan has indicated that a new gas policy will include reforms in domestic gas pricing, and will move towards more market-oriented pricing.

IGX officials said that a highly liquid gas exchange, which prices gas fairly may lead to the government stepping away from pricing domestically produced gas.

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Will this make India more import dependent?

Domestic production of gas has been falling over the past two fiscals as current sources of natural gas have become less productive. Domestically produced natural gas currently accounts for less than half the country’s natural gas consumption; imported LNG accounts for the other half.

LNG imports are set to become a larger proportion of domestic gas consumption as India moves to increase the proportion of natural gas in the energy basket from 6.2% in 2018 to 15% by 2030.

What regulatory change is required?

Currently, the pipeline infrastructure necessary for the transportation of natural gas is controlled by the companies that own the network. State-owned GAIL owns and operates India’s largest gas pipeline network, spanning over 12,000 km.

Mediratta of IGX said an independent system operator for natural gas pipelines would help ensure transparent allocation of pipeline usage, and build confidence in the minds of buyers and sellers about neutrality in the allocation of pipeline capacity.

Experts have also called for natural gas to be included in the Goods and Services Tax (GST) regime to avoid buyers having to deal with different levies such as VAT across states, when purchasing natural gas from the exchange.

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