India is likely to set up gas trading hub by first quarter of 2020-21

India is likely to set up its ambitious gas trading hub by the first quarter of 2020-21, after the bifurcation of GAIL. The split is likely to take place by the end of this financial year.

The Narendra Modi government is looking into a plan to unbundle the gas transmission and marketing business of GAIL. 

For the unbundling, the government-owned GAIL had entrusted EY as a consultant. 

According to a government source, GAIL and Oil and Natural Gas Corporation (ONGC) are likely to take equity in the planned gas exchange, which is a part of the natural gas trading hub. In April 2018, KPMG came out with an initial report submitted to the Petroleum and Natural Gas Regulatory Board (PNGRB) for the creation of a gas hub in India. 

“Several key decisions, including unbundling of GAIL and inclusion of natural gas in the goods and services tax (GST), are going to be the key for creation of the hub,” said a government official.

The ministry of petroleum and natural gas is likely to seek the approval of the Union Cabinet. Interestingly, the government is in the process of taking a final call on whether nomination gas will be a part of the gas hub. “If nomination gas sold at a lower rate is brought into this trading hub, it will be a huge boost for producers like ONGC and Oil India. The government is yet to take a final call on this,” he said.  

Based on the plan, existing commodity exchanges like the Indian Energy Exchange (IEX) and Multi Commodity Exchange of India (MCX) may be part of the planned gas exchange along with ONGC and GAIL. RS Sharma, former chairman of ONGC, however, said, “I believe a new entity should be created for running the gas exchange. None of the exiting players, including ONGC or GAIL, should be a part of it. If formed like a regulatory body, it will not even require a capital investment.”

In 2017, refining companies like Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL) had shown their interest in acquiring GAIL to expand their gas marketing business. Under the Petroleum and Natural Gas Regulatory Board Act of 2006, marketing and transmission functions should not be performed by the same entity. 

The purpose was to prevent conflict of interest since a company like GAIL is in a position to push its gas on a priority basis. This is because, as a transmission company, it also operates pipelines.

Though GAIL did not spin off its marketing business, it decided to split its business and accounts into marketing and transmission units. 

Last year, Union petroleum minister Dharmendra Pradhan had said that the primary job of GAIL was to lay gas infrastructure in the country, while the marketing can be “done by anyone.”