India's first gas exchange launched: Know about gas trading platform and how it works
As we know that the Minister of Petroleum and Natural Gas, Dharmendra Pradhan has launched India's Gas Exchange, the first nationwide online delivery-based gas trading platform on 15 June, 2020. No doubt it is a step that is expected to lead to market-driven pricing and boost consumption by improving availability.
India's Gas exchange (IGX) platform is incorporated by the Indian Energy Exchange (IEX). It is India's leading energy market platform commenced trading on the platform on Monday.
IEX in a statement said "IGX is fully automated with a web-based interface to provide seamless trading experience to the customers and is powered by best-in-class technology from GMEX which is one of the world’s leading digital exchange trading and post-trade technology providers,”
Now first let us understand about an exchange.
An exchange is a market place where securities, commodities, derivatives and other financial instruments are traded. The main function of an exchange is to make sure fair and orderly trading and therefore the efficient dissemination of price information for any securities trading thereon exchange.
An exchange may be a physical location or an electronic platform. In a physical location, traders meet to conduct business. Increasingly trading is being conducted on electronic exchanges.
There are several stock exchanges in India including the Bombay Stock Exchange, National Stock Exchange, Calcutta Stock Exchange, Metropolitan Stock Exchange, India International Exchange, etc.
Similarly, there are several exchanges where Commodities are exchanged on online platforms. In Multi Commodity Exchange of India (MCX) Energy, Metal, Bullion and Agricultural commodities are exchanged.
Energy includes Crude Oil, Crude Oil Mini, Brent Crude Oil, Natural Gas.
Metal includes Aluminium, Aluminium Mini, Copper, Copper Mini, Lead, Lead Mini, Nickel, Nickel Mini, Zinc, Zinc Mini, Brass.
Bullion includes Gold, Gold Mini, Gold Guinea, Gold Petal, Gold Petal (New Delhi), Gold Global, Silver, Silver Mini, Silver Micro, Silver 1000.
Agricultural Commodities include Cardamon, Cotton, Crude Palm Oil, Mentha Oil, Castor seed, Black Pepper, etc.
Now let us understand how the Gas Exchange will work?
The Indian Gas Exchange (IGX) is a digital trading platform that will allow buyers and sellers of natural gas to trade in both the market namely the spot market and the forward market. The gas exchange is going to be managed by India Energy Exchange.
Through the exchange, imported Liquified Natural Gas (LNG) is going to be regasified and sold to buyers, removing the need for buyers and sellers to seek out one another. That is now buyers don't have to contact multiple dealers to ensure they find a fair price according to Rajesh Kumar Mediratta, the director of IGX.
The exchange will also allow much shorter contracts for delivery on the next day, and up to a month and ordinarily, contracts for natural gas supply are as long as six months to a year. This will allow buyers and sellers greater flexibility.
What is the Indian Energy Exchange (IEX) Limited?
It started its operations on 27 June, 2008. Headquarter is in New Delhi, India. Product exchange is Electrical power, Energy exchange. The power trading exchange is regulated by the Central Electricity Regulatory Commission (CERC).
Let us tell you that for the time being trading will take place only in imported natural gas across three hubs namely Dahej and Hazaria in Gujarat, and Kakinada in Andhra Pradesh.
Is domestically produced natural gas will also be bought and sold on exchange?
No, it will not because the price of domestically produced natural gas is decided by the government. Therefore, it will not be sold on the gas exchange.
Petroleum Minister Dharmendra Pradhan indicated that a new gas policy will include reforms in domestic gas pricing and will move towards more market-oriented pricing.
What will be the impact of the gas exchange?
It is expected that it will facilitate transparent price discovery in natural gas and also facilitate the growth of the share of natural gas in India's energy basket.
Currently, domestically produced natural gas accounts for less than half the country's natural gas consumption and imported LNG accounts for the other half.
The imports of LNG are set to become a larger proportion of domestic gas consumption as India moves to raise the proportion of natural gas in the energy basket from 6.2% in 2018 by 15% by 2030. Pipelines in the gas sector play an important role.
Presently, the infrastructure of the pipeline that is necessary for the transportation of natural gas is controlled by the companies that own the network. India's largest gas pipeline network is owned by the State-owned GAIL and the network span is over 12,000 km.
Therefore we can say that an independent system operator of natural gas pipelines would help to ensure the transparent allocation of the usage of pipelines and build confidence in the buyers and sellers about neutrality in the allocation of pipeline capacity. That is it will facilitate the growth of the share of natural gas in India's energy basket.