India is targeting rapid growth in natural gas’ share in the country’s energy basket from 6 percent now to 15 percent by 2030. In this pursuit of becoming a gas-based economy, many believe that there is a need for a transparent and market-driven pricing mechanism and India’s first gas exchange — the Indian Gas Exchange (IGX) — is considered as a step towards achieving this goal.
IGX came to limelight recently when Adani Total Gas, Torrent Gas and GAIL India acquired 5 percent stake each in the platform. Moneycontrol had reported that the National Stock Exchange (NSE) is likely to acquire at least 26 percent stake in IGX soon.
Rajesh Kumar Mediratta, the Director of IGX, said that the company is in talks with multiple players to be roped in as strategic partners. He added that for the exchange to get a real Indian price discovery, domestic gas should also be allowed to be traded on the platform.
Here are the edited excerpts of the interview:
Q. There were reports about roping in fresh strategic partners in IGX. What is the status?
A. We are in talks with some players to rope them in as strategic partners. They are all big players in the market. We would like to see that we continue to hold some majority part of the stake. Since the gas sector is large, we may have to get more people to join the exchange.
Q. Have you set a timeline for this?
A. The gas exchange regulation also requires that we bring down the Indian Energy Exchange (IEX) equity to 25 percent within five years. That is what we will do in five years' time. All equity partners, who are from the gas sector, can only hold 5 percent in the exchange. If there is someone who is not trading on the exchange, he is allowed to hold more than that.
We already have 85 percent stake in the exchange, the rest is owned by Adani Total Gas, Torrent Gas and GAIL India.
Q. The government announced the creation of a transport system operator to auction gas pipeline capacity in the recent Budget. How do you see this move?
A. There were talks about unbundling of transport and marketing companies like GAIL. The purpose of the whole exercise of unbundling was to have a transparent and indiscriminate way of doing a capacity allocation. If you create a system operator, then also you will meet the objective. It is not that only unbundling can take care of the concerns of the market. Even if you create an independent system operator, even GAIL will have to go to that operator. Then whole scheduling and accounting will be done in a more transparent manner. I think that takes care of the concern of the market that access to infrastructure should be neutral and indiscriminate.
Q. Do you think domestic gas should be a part of your exchange?
A. We don’t have domestic gas coming to the exchange. Even domestic gas that has market freedom is not coming. Maybe, they can take away some of APM (administered pricing mechanism) gas and allow that to be sold in the market.
When the domestic gas comes, we will really get the Indian price discovery. Today, when liquefied natural gas (LNG) is coming, the price you are getting is already discovered somewhere else. It is not necessarily an Indian price. The domestic producers will get a better price in the exchange and buyers will get a price in between. For example, in February, when the domestic gas was selling at $2 per mmBtu (million metric British thermal unit), RLNG was at $30 per mmBtu. So, there is nothing in between for the buyers at present. Tomorrow, if we combine both, we will get a price at $5-6 per mmBtu, which will be good for the industry and for the producers too.
Q: How much volume did you handle so far?
A. So far, we have traded around 80,000 mmBtu. We have to work on two sides, we have to create awareness so that more buyers and sellers can be roped in. We already have around 15 members and over 500 clients. Today, not all clients are ready to trade. Only about 20 clients are buying on the exchange. Other clients are waiting for more volume to come and for price discovery to happen in the market. Volume is one area we have to work on.
Q. What are the constraints that you are still facing?
A. Trading did not take place to the extent that we expected, because in January only, the prices had gone very high. Because of winter, there were huge supply constraints and logistical issues too. As the Panama Canal was choked, the gas from the United States could not come to Europe and Asia. Hence, the price of gas went as high as $40 per million metric British thermal unit (mmBtu) at one point. For February, the average price went up to around $30 per mmBtu. At these prices, buyers are not interested in India. So, the whole spot market, particularly short-term market dried up. Cargo was going to Japan and most of the demand was coming from there.
In addition, the COVID-19 situation was also a catalyst to this. For example, industries like glass, ceramics, hotel and even transport were having low demand. Industrial sector demand has revived a bit to around 95 percent now. Sectors like city gas distribution and power also got impacted badly. Maybe refinery and fertilisers were not affected much, but overall demand was subdued. That is also impacting the spot market. For these reasons, the period of January-February was not very good. We could not do much trade because of this. The quantum has not gone to the extent that we expected.
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