India’s gas price index will be relevant for the country: IGX MD

What is the rationale behind the launch of the gas index GIXI?

IGX launched India’s first price index to reflect the benchmark natural gas price for India. So far, people were using other international benchmarks including JKM (Japan Korea Marker) and HH (Henry Hub) for gas in India, but they were not relevant as JKM price is relevant for Japan and Korea.

If somebody wants to sell gas at JKM price to India, there are no takers. Let’s say the price at JKM is $31, but if somebody brings gas at $31 to India, no one is interested in buying that. We should definitely see what is happening in the international market but that should not become our benchmark. That is what we did.

What else is in the pipeline?

We plan to launch contracts for ssLLNG (small-scale LNG), which can be delivered in trucks or tankers. We have already proposed this to the PNGRB (Petroleum and Natural Gas Regulatory Board) and requested their approval. We expect to launch this by January.

Secondly, so far, we were facilitating monthly contracts for up to six months, but we got feedback from the market that domestic gas producers want to sell their gas for longer duration like one year or two years. So we are working on what type of annual contracts we should have.

Another thing we are working on is trading of pipeline capacity. Sometimes market users or customers purchase transmission capacity but are not using them because either their production is shut down or they start using some other fuel. So we are proposing that they should be able to sell this capacity to somebody who wants it and it will be a win-win situation for both. We plan to apply for approval to PNGRB sometime in the next quarter.

How much volume have you handled so far? Do you expect an increase in volume?

We have almost completed 32 million MMBtu (metric million British thermal units) or 3.2 crore MMBtu of volume until now in this financial year. Last year, we handled volumes of about 1.2 crore MMBtu or 12 million MMBtu.

We definitely expect an increase in volumes as earlier we were trading about 30-40 lakh MMBtu per month, which has gone up to 70 lakh MMBtu. We hope that this will continue for the next quarter also because now we are seeing a lot of trade from the domestic producers which is likely to continue. Big producers like ONGC (Oil and Natural Gas Corporation) and Vedanta are already on the exchange but we expect more small producers to come on the exchange.

Any plans for an initial public offering (IPO)?

No, we don't have any plans for next year. IEX (Indian Energy Exchange, the parent company of IGX), has five years to bring down its shareholding from 47 percent to 25 percent. So we would like to do it (IPO) only in fifth year, i.e., by December 2025.

What are the challenges faced by the exchange?

Small contracts like fortnightly contract, weekly contract and daily contract happen at shorter notice. Because there are multiple pipeline operators, we have non-uniform processes. For instance, one pipeline operator will require some data for capacity booking while another pipeline operator will require some other data. We feel that there should be a single pipeline operator like a country with a mature market has.

GST (goods and services tax) is also very important. If there is different tax for different states, then people are not making their choice based on the cost of gas but on the cost of gas plus taxation. So delivery of gas will not happen in a state because taxation is high. That is not right; the price of gas should be the main criterion for a transaction.

There should also be more transparency regarding information on pipeline capacity. And the fourth thing is that fertiliser plants are not allowed to buy directly from the exchange because of the guideline approved by APMC (Agricultural Produce Market Committee). We feel they should be allowed to purchase cheaper gas from exchange and in turn the government will also save a lot of subsidies.

What is your price volume outlook for 2023?

My outlook is based on inputs we received from other markets and players. We feel gas prices will continue to remain in double digits for next year. It will not come down to single digit next year and single digit exchange prices are expected only in 2025. At least for next two years, people expect prices to be in double digits.

What are your budget expectations?

Other than GST, we expect an announcement regarding TSO or transmission system operator. In 2021, there was some announcement in the budget about gas system operator but then we did not see it come through. So we expect some announcement on that in the budget.

The European Union agreed to a price cap on gas. How will it impact India?

EU energy ministers put the cap of 180 euros per megawatt hour which is equivalent to around $60 per MMBtu. But this cap is too high for Indian standards. In India, we are anyway not touching $60 anytime. Our maximum price was $35 to $38 in September and October but except those months, prices remained below $30. India cannot absorb any gas which is above $30. So, for us, this cap will not impact much.

I don't think any investments will stop because $60 is a very good price for any gas producer in Europe or the US. So I don't think there will be any drop in production of LNG because of this cap. It has been done to save customers in European countries.

When do you expect gas prices to go back to pre-Ukraine war levels?

Prices were high even before Covid-19 and Russia-Ukraine war. Everybody thought gas is a transition fuel and renewables will take over. So people did not invest in gas or LNG infrastructure which resulted in shortage of capacity in production. This did not reflect during Covid-19 because demand was less but as soon as Covid-19 was over, demand picked up and prices went up.

We thought prices would come down in 2022 but because of the war it did not come down, rather it picked up and went up to $60, $70 per MMBtu. Investments have started coming in now and people are saying that you will need gas even in 2050 despite the net-zero goals declared by many countries. Investments have started coming in 2022 and it will take some time before the new LNG terminals, liquefaction terminals and gas terminals are up. Prices are going to soften at pre-Covid levels only in 2025-26 because by then infrastructure would have been established and then a lot of gas would be coming into the system which will normalise prices.

What is your perspective on the Kirit Parikh committee’s recommendation of gas pricing liberalisation?

Their recommendations are very balanced. They have taken note of constraints of CGD (city gas distribution) companies, domestic gas producers and then given recommendations. It is good for the market that at least we are getting a roadmap now. We can expect market-based gas prices for domestic producers. They can then take a call whether they want to sell in a bilateral manner, how much they can sell in the long term and how much they can sell on the spot. We expect that the government will accept the recommendations.

PNGRB plans to implement a unified tariff for natural gas infrastructure. What will be its implications?

It is very good for the market because today we have very fragmented tariffs. If somebody in Delhi wants to purchase gas from South KG Basin, he has to pay one tariff for pipeline connecting from KG Basin to Dahej, another tariff to GAIL (Gas Authority of India Ltd) from Dahej to Delhi and then if there are more licences, then you have to pay more tariffs. With a unified tariff, people will not bother about where they are buying from because they have to pay a single price, even if they buy from KG Basin or Dahej or from anywhere else.

Today, we have nine delivery points. We can club a few of the delivery points when the tariff is unified. Because of that, we will have arbitrage only because of tax and not because of transmission.

What are the steps required to increase natural gas consumption in India

Gas is a low-carbon fuel compared to other fossil fuels. People who are using diesel vehicles should move to CNG; states should pursue that. On the industry side, coal should be stopped in cities with high AQI (Air Quality Index) levels and people should be asked to move to gas. This will improve demand.

There are plans to increase the pipeline network from 20,000 km to 35,000 km. This extra 15,000 km should be established as early as possible.
We also need to create a good market where if anybody needs gas, the market should be able to provide it with least hassles.

For a good market, unbundling of contracts should be implemented and transmission capacity access should be made available without any barriers, resistance or objections.