India's Gas Exchange gets regulatory nod to ramp up trade for domestic gas output

The India Gas Exchange has received approval from downstream regulator, the Petroleum and Natural Gas Regulatory Board, or PNGRB, to trade domestic gas on its platform starting May 16, the exchange officials said late May 13.

The approval to trade locally produced gas follows a regulatory order by the oil and gas ministry in August 2021 that mandated Indian gas producers to sell up to 500 million cu meters, or 10% of annual output from their contract area, whichever is higher, every year through gas exchanges.

The move was aimed at freeing up a portion of domestic gas production from regulated pricing and allowing market forces to determine gas prices. It is in line with gas market liberalization policies being implemented across Asia and comes amid high volatility in global gas markets that has raised energy prices for importers.

"This is like the beginning of a new era in gas markets," Rajesh K. Mediratta, Managing Director and CEO of IGX said.

Mediratta said the approval will enable IGX to trade gas produced by state explorer Oil & Natural Gas Corp and gas from BSE-listed Reliance Industries' KG D6 block off the coast in eastern India that has a price ceiling, and bring transparent gas market pricing from sources like coal bed methane and smaller gas fields on a more flexible spot basis up to 6 months.

Consumers will be able to buy High Pressure, High Temperature gas -- produced from extreme environments at a much higher cost than conventional sources -- at the current ceiling price of $9.92/MMBtu through IGX and, for other domestic gas where there is no ceiling price, buyers would receive gas at a much better price in the spot market, Mediratta said.

The exchange also provides trading flexibility and secure payment mechanisms that will incentivize smaller offshore and onshore gas producers to find customers and maximize domestic gas production, while increasing liquidity on the exchange platform, IGX said.

IGX expects small buyers, who currently do not have access to domestic gas due to larger companies being allotted more volumes, to access the exchange platform and procure domestic gas at competitive prices.

The exchange already conducts trading of natural gas but this is mostly for regasified LNG. In April, IGX traded 568,050 MMBtu, a 585% growth from the 82,900 MMBtu that traded a year ago. The trades are likely to have included some marginal volumes offered by small players that do not come under price controls, but from May 16 onwards trading of do.

At present, traded gas volumes are not tagged or classified by source. IGX, established in 2020, is India's first automated trading platform for the physical delivery of natural gas. It has five delivery hubs at Dahej, Hazira, Dabhol, Jaigarh, and KG Basin.

India has set a target for natural gas to account for 15% of its energy mix by 2030, up from the current 6.7% and compared with a global average of more than 20%.