Indian Gas Exchange

The Indian Gas Exchange or IGX is a digital trading platform that will allow all buyers and sellers of natural gas to trade both in the spot (purchasing it at the current market price) and forward market (buying forwards contract for a few months i.e. 3 or 6 months after the current date, for delivery of the goods), just like the other exchanges like NSE, BSE etc. The exchange allows much shorter contracts, ranging from T+1 to upto a month whereas ordinary contracts can be for as long as 6 months to upto a year. This gas exchange will be managed by the India Energy Exchange which was established on June 27, 2008 in New Delhi. Electricity is traded on this exchange just like shares, futures and options are traded on BSE or NSE. 

For the time being the trading on IGX will take place only in imported natural gas across 3 hubs, Dahej and Hazira in Gujarat and Kakinada in Andhra Pradesh. The price of the imported natural gases will be determined by the market forces of demand and supply which will lead to better price discovery, whereas the price of domestically produced natural gases are decided by the government of India, and will not be sold on the gas exchange as of now. This decision of the government has led the domestic producers to question the government and petition for a change, as they want the domestically produced gases to be priced according to the market forces of demand and supply. According to them, the current method of pricing is leading to an increase in their costs of production and exploration and the prices set by the government are not viable. The Petroleum Minister, Dharmendra Pradhan has indicated that a new gas policy will include reforms in domestic gas pricing and will move towards more market oriented pricing.

Petroleum minister Dharmendra Pradhan Inaugurating the IGX

Impact of formation of IGX :-

1. The exchange will facilitate a better and more transparent price discovery in natural gas.

2. It will facilitate the growth of the share of natural gas in India’s energy basket. The proportion of natural gas consumed has increased in the last few years and so it is necessary to increase the amount of natural gas in India’s energy basket from 6.2% in 2018 to at least 15% by 2030. The exchange will help in increasing the supply of natural gases thus increasing the import. Domestic production currently meets 50% of the requirement.

There has also been a call for natural gases to be included in the GST so that buyers can avoid dealing with various different rates of VAT across the states when purchasing from the exchange. 

What are the regulatory changes that are required?

Currently the pipeline infrastructure that is required for the transportation is owned by the companies who own the network. Independent system operators for the natural gas pipelines will help ensure the transparent allocation of pipeline usage and thus will help build goodwill amongst the buyers and sellers about the neutrality in the allocation of pipeline capacity.