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Tags Current Affairs

India’s first gas exchange

Date: 16 June 2020 Tags: Infrastructure

Issue

India’s first gas exchange, the Indian Gas Exchange (IGX), has been launched. The exchange is expected to facilitate transparent price discovery in natural gas, and facilitate the growth of the share of natural gas in India’s energy basket.

 

Background

The IGX is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs —Dahej and Hazira in Gujarat, and Kakinada in Andhra Pradesh.

 

Details

  • Imported Liquefied Natural Gas (LNG) will be regassified and sold to buyers through the exchange, removing the requirement for buyers and sellers to find each other.

  • The exchange also allows much shorter contracts – for delivery on the next day, and up to a month – while ordinarily contracts for natural gas supply are as long as six months to a year. This will allow buyers and sellers greater flexibility.

  • The price of domestically produced natural gas is decided by the government. It will not be sold on the gas exchange. However, a new domestic gas policy is on the cards.

  • Domestic production of gas has been falling over the past two fiscals as current sources of natural gas have become less productive. Domestically produced natural gas currently accounts for less than half the country’s natural gas consumption.

  • LNG imports are set to become a larger proportion of domestic gas consumption as India moves to increase the proportion of natural gas in the energy basket from 6.2% in 2018 to 15% by 2030.

  • Currently, the pipeline infrastructure necessary for the transportation of natural gas is controlled by the companies that own the network.

  • An independent system operator for natural gas pipelines would help ensure transparent allocation of pipeline usage, and build confidence in the minds of buyers and sellers about neutrality in the allocation of pipeline capacity.

  • Experts have also called for natural gas to be included in the Goods and Services Tax (GST) regime to avoid buyers having to deal with different levies such as VAT across states, when purchasing natural gas from the exchange.

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