IEX to launch trading platform Indian Gas Exchange; norms yet to be framed

IGX will be offering a spot contract for the day ahead market, which means gas will be physically delivered the next day

India’s leading power trading platform Indian Energy Exchange (IEX) has started looking for members and gas buyers for its natural gas trading platform, Indian Gas Exchange (IGX).

However, the Petroleum and Natural Gas Regulatory Board (PNGRB) is yet to come up with guidelines for gas trading in the country.

IGX would offer spot and forward contracts at Dahej, Hazira and Kakinada. While Petronet LNG (PLL) operates a liquefied natural gas (LNG) terminal at Dahej, Shell operates another one at Hazira. Kakinada is the landfall point for natural gas being produced at the Krishna Godavari basin.

IGX will be offering spot contract for the day-ahead market, which means gas will be delivered the next day. The forward contract is for daily, weekly, monthly and fortnightly markets.

Currently, LNG is not regulated, both in terms of supply contracts and pricing, while domestic gas prices are notified by the government. Supply contracts for gas produced by the government-owned companies are dictated by the government norms.

IEX, which has 90 per cent share in the day-ahead power trading, is planning an initial investment of Rs 10 crore for IGX over the next five years. Senior executives said this was planned keeping in mind the growth potential of the gas market.

“Gas market in India is poised for a breakout growth of 2.5X, from 166 to 380 million metric standard cubic meter per day, or MMSCMD, by 2030. With conducive policies, the share of natural gas in India’s energy basket could double to 15 per cent,” said a company executive.

 

 

While the current government has been vocal about having a gas trading hub for the past three years, regulations are yet to be framed. The PNGRB is yet to take a call on IEX’s plans. A PNGRB official indicated that they were in the process of forming regulations on the gas trading hub, and gas trading guidelines will take shape only later.

GAIL and Oil and Natural Gas Corp (ONGC) were expected to take equity in the planned gas exchange, which would have helped create a natural gas trading hub.

In April 2018, KPMG came out with an initial report submitted to the PNGRB for the creation of a gas hub in India.

A GAIL official said the company was not against the IEX move so far. “It is a free world. But one has to see the legal validity of such an institution as the regulations by the PNGRB are yet not out,” said the GAIL official. 

The government needs to take a call on whether gas produced out of domestic fields allotted on nomination basis, and currently given on priority to notified sectors, will be traded.

In a presentation to potential members, IGX said an exchange would help in increasing volumes and infrastructure utilization of terminals and pipelines.

“Even small industries can use the exchange to procure gas at competitive prices. This will also help in revival of gas-based power plants. The exchange can provide gas at competitive rates for grid balancing purpose in upcoming high renewable energy scenario,” said the presentation.

Peak power from gas and hydro is needed to balance the power grid with rising share of intermittent renewable. IGX is also looking at the fertiliser industry and city gas distributors as buyers on their platform.