India's maiden natural gas exchange to start operations on Monday

Based on the IGX business model, each member will have to pay for its membership, an annual fee and a transaction fee.

Indian Gas Exchange (IGX), the country’s first natural gas exchange, will start operations on Monday at a time when a gas hub conceptualised during the first tenure of the NDA government is yet to become a reality. 

IGX, set up by the Indian Energy Exchange (IEX), will offer option of both just buying the product as well as purchase along with delivery. “For normal transactions, IGX will be charging a nominal fee of Rs 5 per unit, while for delivered transactions it will be charging Rs 7,” said a person close to the development. The delivered transactions will require ensuring pipeline availability with operators, too.

According to an IGX presentation, around six trader members and over 100 clients are on board for its operations. Based on the IGX business model, each member will have to pay for its membership, annual fee, and also for transactions. IGX would offer spot and forward contracts at Dahej, Hazira, and Kakinada. Spot contract for the day-ahead market, which means gas will be delivered the next day. Additionally, there will be forward contracts, too, that will be for daily, weekly, monthly, and fortnightly markets. 

The exchange is coming up without any regulatory framework in place. Currently, neither the government nor the Petroleum and Natural Gas Regulatory Board have any regulations for LNG.

Pricing is negotiable between the contracting parties while in the case of domestically produced gas, prices are notified by the government. Supply contracts for gas produced by the state-owned companies are ruled by the government norms. IGX will have to abide by the government regulations on gas hub, once it is in place. In the power sector, IEX holds 90 per cent share in the day-ahead power trading.

A major issue would also be whether gas produced out of domestic fields allotted on nomination basis and currently given on priority to notified sectors, will be traded in the platform. The company is in talks with the government to avail more clarity on this. 

The government is planning to increase natural gas consumption, as part of the energy mix, in the next decade to 15 per cent from the current level of 6.2 per cent. The source added that the move would be a step towards the goal of being a gas-based economy. Estimates suggest that daily consumption should increase to 600 million metric standard cubic meter per day (mmscmd) from the current levels of around 160 mmscmd. In the next decade, investments of around $60 billion are expected in the country’s gas infrastructure. 

On the other hand, the government’s plan to come up with a gas hub is likely to happen only after the bifurcation of GAIL. The Narendra Modi government is looking into a plan to unbundle the gas transmission and marketing business of GAIL.