India is ready to introduce its very first and very own automated trading platform for gas trading. On Monday, June 15, Union Oil Minister Dharmendra Pradhan inaugurates Indian Gas Exchange (IGX) to mark the beginning of natural gas trading through a consolidated platform in the country.
Gas is a widely traded commodity globally, with high demand in different sectors, including energy, ceramic, and more. With the introduction of IGX India will receive its very first dedicated platform where natural gas will be the primarily traded asset. It’s a decision that was long pending, but finally received a green signal from the government. IGX has already conducted three mock trading sessions on March 20, April 9, and May 21 amid enthusiastic participation from the industry. Initially, the platform will trade on six types of contracts – day-ahead, daily, weekly, weekdays, fortnightly and monthly.
Policy battle over IGX
Uncertainty over regulation policies had thwarted introduction of IGX earlier. The original idea to set-up a separate trading platform exclusively for natural gas was conceived by Petroleum and Natural Gas Regulatory Board (PNGRB); and they officially floated it in 2018. However, there were lots of doubts over how and who will have control over the exchange when it becomes operational. It had delayed the launching of IGX.
IGX is launched as a wholly-owned subsidiary of Indian Energy Exchange (IEX), which exclusively facilitate deals in energy sector commodities. Introduction of Indian gas exchange is likely to improve the whole set-up for natural gas trading in India, making it transparent, market-driven, and automated.
Salient features of IGX
- The new natural gas trading platform is separate from the natural gas auction conducted by the government.
- IGX is introduced as a fully functional natural gas trading exchange for the first time in India.
- It will be a multi-player platform with numbers of buyers and sellers engage anonymously in trading through spot and forward contracts.
- It will help in discovering competitive market potential and price, managed by demand-supply metrics of the market.
- Initially, it has made a physical settlement of all the contracts mandatory, eliminating chances of speculation. All contracts traded in IGX, for the time being, will be non-transferrable.
- Buyer and sellers will place anonymous bids to maintain transparency in the trading process.
- Price discovery will be undertaken through double-sided closed auction form or continuous trade mechanism.
- IGX will introduce the highest degree of integrity in the deals by providing counterpart guarantee in the form of fund obligation to members.
The proposal to introduce an exclusive trading platform for natural gas was on the platter for quite some time. But policy controversies and later, the COVID-19 pandemic have delayed its launch. As a product, natural gas is of high value and needs a convenient marketplace for trading. It will help the regulators get more clarity over market movement, add transparency by making the pricing policy acceptable to all involved. It is not yet clear how much government intervention will be there but expected that it might levy on the transactions taking place to collect some of the benefits from organised gas trading.
To start with, IGX has decided to introduce six contracts, some of which will be available on the opening day, which is June 15; the others will be introduced later on. The bidding will commence on Hazira and Dahej in Gujarat and Oduru or Kakinada in Andhra Pradesh; but going forward, more new hubs will be introduced when more players will leverage the platform.