Gas trading to kick-off in the country with launch of Indian Gas Exchange

Incorporated as a wholly-owned subsidiary of the IEX, the IGX will enable market participants to trade in standardised gas contracts. It will provide fully automated web-based interface to customers for a seamless trading experience.

The gas exchange was infuriated by Petroleum Minister Dharmendra Pradhan, in an e-ceremony held on Monday, and trade on the platform commenced in his presence.

IANS had first reported in September last year that the proposed gas trading hub will come up in the country early next year (first quarter of FY21). Rating agency Crisil had been appointed to assist the regulator and the government in framing rules for the exchange.

Like other exchanges, IGX is expected to play a big role in competitive price discovery for the natural gas that will come from different parts of the globe and from within India. The competitive price discovery will facilitate availability of gas at lower prices for cross-spectrum of industries across India, stimulate demand and facilitate greater investments in domestic gas exploration.

The Indian Gas Exchange will offer six market products beginning from day-ahead market and forward contracts including Daily, Weekly, Weekday, Fortnightly and Monthly at three physical hubs - Dahej, and Hazira in Gujarat and Odoru in Andhra Pradesh to begin with - while it is planned to add more hubs soon.

Through its membership drive launched in March this year, IGX already has 12 members and more than 350 registered clients from prominent industrial segments.

The gas exchanges are expected to work on the lines of power exchanges, which determines the price based on supply and demand and market forces. The gas exchanges would also help small consumers to get short-term supply of fuel at competitive rates.

While long-term gas supply agreements are inked currently and these also are covered under regulations, short-term gas agreements are non-existent in the Indian market. Gas exchanges are expected to change this.

Currently, the Centre fixes the price of the bulk of domestically produced natural gas. The is derived using price prevalent in gas-surplus nations of the US, Canada, UK and Russia that keeps the gas price low. The cost of imported LNG into India is around $4-6 mmBtU.

The government is looking to unbundle marketing and transportation operations of gas in the country, a move that would end up splitting GAIL, which owns most of the nation's natural gas transportation network.

Unbundling is required for a uniform and competitive gas market as GAIL currently has the monopoly both in terms of marketing and transportation of gas. This creates conflict of interest and affects discovery of competitive gas pricing.

As part of its effort to build the gas economy in the country, the government is hoping to raise the share of natural gas in the country's energy mix to 15 per cent by 2030 from the current 6 per cent. It is also planning to double its gas pipeline network and gas import terminal capacity over the next few years.