- Imported Liquified Natural Gas( LNG) will be sold to buyers through the exchange, eliminating the hassle for sellers to find the buyers and buyers to find the fair price.
- India aims to achieve emission reduction targets pledged at the 21st session of the Conference of the Parties (CoP) in Paris by promoting the use of natural gas and green fuel.
- Since the launch of IGX’s online natural gas trading platform, giants such as GAIL and Petronet LNG have shown interest in this first-of-its-kind novel venture.
On June 15, India launched its first gas exchange, the Indian gas exchange to facilitate transparent price discovery in natural gas and help increase the share of natural gas in India’s energy basket.
“With this landmark, India is joining the club of progressive economies as there will be a market-driven pricing mechanism, India Gas Exchange will play a bigger role towards realizing a free market for gas,” said Dharmendra Pradhan, oil minister at the virtual launch ceremony of IGX.
A New Chapter in the Indian Energy History
The gas exchange is a trading platform that permits buyers and sellers to trade both spot and forward markets for imported gas across Dahej and Hazira in Gujarat and Kakinada in Andhra Pradesh.
Imported Liquified Natural Gas( LNG) will be sold to buyers through the exchange, eliminating the hassle for sellers to find the buyers and buyers to find the fair price. It will help market-based price discovery, benefitting small companies who can source the gas directly. The key users of gas such as fertilizers, power, and city gas distribution will benefit from it.
The exchange allows flexibility in terms of delivery from a day up to a month, unlike the traditional methods where one had to wait for six months to a year. However, domestically produced gas cannot be sold on the platform since the price is decided by the government.
It has been seen that the domestic production of gas has been falling over the past two years as current sources of natural gas have become less productive. The Exchange believes that once the buyers’ response is good, it can attract market giants such as ONGC and Shell to participate, opening up the possibilities of expansion. Currently, India imports around 55% of its total gas requirement, and one-fourth of this are spot imports.
In February, the Indian Gas Exchange (IGX) had invited members to be part of its platform ahead of its formal launch that earned it 12 members and 300 plus clients at the time of its launch. The members are supposed to pay a security deposit of Rs 25 lakh, minimum 50% cash and the rest in non-cash format, in order to start trading on IGX.
The Petroleum and Gas Regulatory Board (PNGRB) is the market regulator for the natural gas trading platform and is expected to announce a new “pro-business” tariff policy for gas transport soon.
Through IGX, India’s vision on mega investments on Liquefied gas (LNG) terminals, gas pipelines, CGD infrastructure, and permission for market-driven price mechanisms are going to be materialized.
India’s Emission Reduction Target
India is the third biggest emitter of greenhouse gas after the US and China. Post-2021, India, and China are expected to be the biggest drivers of demand growth for natural gas. India aims to realize emission reduction targets pledged at the 21st session of the Conference of the Parties (CoP) in Paris by promoting the utilization of gas and green fuel.
It is expected that LNG imports will turn into a bigger proportion of local gas utilization in India as the nation wishes to expand the extent of natural gas in energy from 6.2% in 2018 to 15% by 2030.
The track was set down in the financial plan after Nirmala Sitharaman, the finance minister of India declared extension plans for the national gas network of 27,000 km from the present 16,200 km to help extend gas markets in India. While an exchanging center would encourage the accessibility of gas, the framework would help connect gas sources to consumption points, bringing increasingly local and industrial customers.
Supported by sound government activities, India is advancing in its establishment of the essential downstream and midstream foundation to circulate gas. Similarly, as it has accomplished for oil as pipelines, processing plants, and retail stations.
What’s in for Other Players
The launch would be positive for organizations, such as ONGC and Oil India because of higher realisations as the current method is prompting tremendous losses for gas makers because of record-low costs. GAIL and Petronet LNG will likewise profit as there is a greater market for their items.
A few goliaths, for example, GAIL and Petronet LNG have shown interest since the launch of IGX’s online natural gas trading platform. The list incorporates other significant industry players like Manikaran Power, Torrent Power, and Adani Gas, in this manner presenting the segment substantial opportunities.
As per a report published in ET Energy World, there were updates on GAIL floating an Expression of Interest (EOI) to obtain around 26% in the new trade, bringing up issues on the autonomy of IGX.
The competition is expected to increase as more gas companies would participate in the exchange. However, there is a challenge in front of Industry players. Gas isn’t under the domain of GST which would affect the ability to claim an input tax credit on some inputs availed by these companies. The success of the trade would likewise rely upon the amount of the absolute volumes move to the gas trade center point.
Headwinds and the way Forward
There is still a long way to go before India can become a gas-based economy. The everyday increasing price of petrol, diesel, CNG, and PNG is a cause of serious concern. The government has been reluctant to bring the fuel under the rationalised goods and services tax (GST), to retain flexibility in order to meet its fiscal goals. For example, as the prices of global crude oil slumped due to Covid, the country continued to increase diesel and petrol tax rates in the past month to pounce on the opportunity of ramping up tax collections.
It is expected that relatively lower GST rate for gas would incentivise consumers to increase demand. However, substituting one fuel for another will still leave India vulnerable to the volatilities of the global market. India’s oil and gas exploration efforts have suffered due to inefficient pricing and opaque policies.
Additionally, domestic producers believe that the pricing of domestically produced gas does not reflect the high cost of production. The local gas price is linked to a basket of low global reference rates in countries such as Canada, the UK, and the US.
India is expected to gradually end federal controls on gas pricing as it seeks to attract foreign investment to lift local output. There is an incentive for backing gas as India wants to come out as a nation that is sensitive to the environment. There is, however, work to be done to make the transition a success.
(Edited by Anu Choudary)
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