The Indian Gas Exchange (IGX), India’s first gas exchange, recently made headlines with its launch. This novel digital trading platform allows the buying and selling of natural gas in the spot market and the forward market for imported natural gas. The exchange will serve three hubs: Dahej and Hazira in Gujarat, and Kakinada in Andhra Pradesh.
Understanding the Indian Gas Exchange (IGX)
The IGX is a digital trading platform designed to facilitate the trading of natural gas. However, it will not feature domestically produced natural gas as the pricing of this commodity is government-controlled. The platform caters primarily to the spot market, an open public financial market where commodities are traded for immediate delivery, and the forward market, an over-the-counter marketplace that sets future delivery prices for financial instruments or assets.
Benefits of the Indian Gas Exchange
By providing a platform for natural gas trading, the IGX is expected to encourage transparent price discovery and foster the growth of natural gas in India’s energy mix. It eliminates the need for buyers and sellers to find each other for fair price deals. The exchange also offers shorter contracts, such as next-day delivery and up to a month, compared to usual natural gas supply contracts that can span a period from six months to a year. This offers greater flexibility to buyers and sellers.
India’s Dependence on Imported Natural Gas
As the country aims to increase the share of natural gas in the energy mix from 6.2% in 2018 to 15% by 2030, imports of this commodity are projected to rise. Additionally, there has been a decline in India’s domestic production of gas over recent fiscal years due to diminishing productivity of current sources. Imported natural gas now accounts for around half of India’s total consumption.
Regulating Natural Gas Transportation
At present, the pipeline infrastructure crucial for natural gas transportation is under the control of network-owning companies. The Gas Authority of India Limited (GAIL), a state-owned entity, presides over India’s largest gas pipeline network stretching over 12,000 km.
Government Initiatives in the Gas Market
The Indian gas market features multiple price bands for assets like pre-NELP, NELP, High Temperature and High pressure (HTHP), and Deepwater and Ultra Deep Water blocks. India has long-standing gas contracts with several countries including Qatar, Australia, Russia, and the US, and has invested abroad in strategic assets located in Mozambique, Russia, and beyond. Several ongoing projects are underway to strengthen gas infrastructure within the country, including Urja Ganga, Eastern India grid, Indradhanush project in the Northeast, Dhamra-Dahej pipeline, coal gasification, and CBM policy.
The Path Forward
Creating an independent system operator for natural gas pipelines could help ensure transparent pipeline usage allocation and instill confidence in buyers and sellers about neutrality in pipeline capacity allocation. Additionally, incorporating natural gas into the Goods and Services Tax (GST) regime could simplify the buying process by replacing different levies like Value Added Tax (VAT) across states. Lastly, the fair pricing of gas through IGX could prompt the government to shift away from controlling domestic gas prices towards market-oriented pricing.
