Indian Gas Exchange will also trade domestic gas: interview
Indian Gas Exchange (IGX) will soon begin to trade locally produced natural gas which will lead to more end-users participating as buyers, IGX’s CEO and managing director, Rajesh Kumar Mediratta tells NGW in an interview.
“Over the next few months, we will have domestic gas producers also coming on the exchange to sell their gas with marketing freedom. We definitely will have many more end-users participating as buyers. Domestic gas will be cheaper than spot and long-term RLNG [regasified LNG],” Mediratta says.
Recently, the Indian government allowed the sale of natural gas through gas exchanges as an additional mechanism besides the e-auction route already available to gas producers. The contractor may sell a small quantity of gas up to 500mn m3 or 10% of annual production from the contract area, whichever is higher, every year through gas exchanges.
Only a part of India’s gas production can be sold freely at present while the rest is under an administered price regime. The biggest volume of such gas with marketing and pricing freedom comes from the Reliance-BP’s fields in the KG basin off India’s east coast.
Mediratta expects the number of sellers to increase as larger volumes of locally produced gas hit the exchange.
After years of decline, India expects production from the KG basin to increase in the coming years as Reliance-BP, as well as ONGC, look to bring in more wells online. RIL and BP are developing three deepwater gas projects at KG basin – R Cluster, Satellites Cluster and MJ – which together are expected to meet about 15% of India’s gas demand by 2023. The R Cluster came online late last year while the Satellite Cluster started production in April this year. In August, Reliance said the first gas from the MJ field in the KG basin was expected during the October-December quarter of 2022.
IGX started operations in June last year as a gas trading platform and has been operating as an authorised gas exchange since December 2020. The exchange operates under the regulatory framework of the Petroleum and Natural Gas Regulatory Board (PNGRB), India’s downstream regulator.
IGX is India’s first automated national-level gas exchange for the physical delivery of natural gas. It offers trade-in five contracts, including daily, weekly, weekday, fortnightly, and monthly delivery at five physical hubs: Hazira and Dahej in Gujarat, KG basin in Andhra Pradesh and Dabhol and Jaigarh in Maharashtra. The hubs in Maharashtra became operational in April.
Mediratta said that IGX may further increase the number of hubs in the country. “We have increased our number of hubs from three to five. We will add a few more,” he says.
IGX has filed an application with PNGRB to allow it to sell gas at demand-side hubs. As of today, all of IGX’s hubs are supply-side hubs where suppliers bring gas and leave it for the buyer to take it from there.
“If you provide buy-side hubs, then the supplier has to take it up to that point and then in terms of taxation probably it would be more efficient and then ultimately buyers should be able to come from those states on the exchange,” Mediratta says.
The tax inefficiencies in the natural gas market are created because the commodity is not governed by the goods and services tax (GST) regime. Thus, different states levy different rates of tax on natural gas.
Get more buyers and sellers on board
IGX has made an impressive start and clocked in record volumes in July. This record was further broken in October. It traded 10,30,150mn Btu of gas last month, up 257% month on month. IGX accomplished the highest single-day trade of 474,500mn Btu on October 26.
However, Mediratta says that the number of buyers and sellers on IGX is still low. “See we knew [when we started] that there would be some challenges in the gas sector because we don’t have too many buyers and too many sellers, the universe is small. Particularly on the sales side, you don’t have so much diversity of domestic gas sellers,” he says.
Earlier this year, IEX divested 26% equity holding in IGX to the National Stock Exchange of India and 5% to GAIL. IEX also sold 5% equity to state-run explorer ONGC. It offloaded 5% equity each to two leading private players in the gas value chain – Adani Total Gas and Torrent Gas.
India is looking to expand the use of gas to 15% by 2030 from 6% at present. Mediratta says some policy reforms are needed for the gas market to grow.
He argues that one of the key pillars for any market is to have a robust and open transmission access framework. Any entity who is interested in buying gas from someone should have neutral access to the transmission network. Open access to pipeline infrastructure in the supply chain is the basic tenet of the competitive market, he says.
At present under the PNGRB (Authorising Entities to Lay, Build, Operate or Expand Natural Gas Pipelines) Regulations 2008, entities are granted authorisation for laying, setting up or expanding a natural gas pipeline after qualifying through a bidding process.
Any entity, be it state owned or privately owned bid for the grant of authorisation. State-owned GAIL is the authorised entity for more than half of the total length of the natural gas pipelines in the country. The industry has been demanding separation of content and carriage.
Earlier this year, the Indian government said it is planning to set up an independent operator to manage common carrier capacity for all natural gas pipelines, which would give all gas marketers a level playing field.
“This is one area where we think which can make difference in terms of giving better access, more transparent, more non-discriminatory access to the transmission network,” Mediratta says.
He also talks about the issue of third-party access to infrastructure owned by city gas companies. As per the existing regulation, city gas companies enjoy an exclusivity period in their licence area, in some cases, it is five years and, in some cases, it is eight years.
The PNGRB has proposed a policy change under which city gas companies would have to provide third-party companies access to their infrastructure to supply gas. “When that happens, it would mean that the customers will have a choice. This will also bring competitive gas options to customers.” Mediratta says.