ANALYSIS. Gas trading hub: A challenge, but doable

Is India ready for its own gas trading platform when it largely depends on imports for this blue fuel?

Critics see LNG lobby at work for pushing India to have its own trading hub as 50 per cent of India’s gas requirement today is met through imports. But if the government is able to correct the current distortions in the domestic gas market, it will indeed create a transparent and competitive business.

So what must the government do to create a conducive environment for gas trading? What a platform requires is presence of multiple buyers, sellers, traders, marketers, and infrastructure providers. Does India have this, is the key question.

Some of the things it will need to decide on is the volume of gas to be traded (removal of allocation of gas mechanism), price deregulation in the purest sense (no cross subsidies or price caps – today gas in India is sold at various price points ranging at about $3-$15/million British thermal units; making the hub price the marker to work from) rationalise transport tariff (entry exit systems are more conducive for better trading environment); and correct the tax regime (local taxes vary from State to State).

These are some of the issues which Petroleum and Natural Gas Minister Dharmendra Pradhan and his team will need to answer as they take upon this ambitious project.

Though the thinking was around for a while, it gathered momentum after Pradhan said at a recent international event that “India is developing a Natural Gas Trading Exchange where both imported LNG and domestically produced gas can be traded”.

The government has appointed a consultant to work on the concept, and once the report is submitted, discussed and accepted, the Petroleum and Natural Gas Regulatory Board will appoint a consultant to develop the rules, a senior official said.

Adequate infrastructure

Says Sashi Mukundan, Regional President and Head of Country, India, BP Group, “I strongly believe market conditions need to exist where the barriers to entry and exit are non-existent, adequate infrastructure for customers to access supply is available, and access is made easy and non-discriminatory. This along with a digital platform that brings producers, suppliers, marketers, traders, infrastructure providers and customers together and integrate the market in a real time and in an open and transparent manner. This to me this is full market integration or what one may call market deregulation.” He, however, is quick to point out that “free market doesn’t mean higher prices! It means providing the commodity in the most efficient and hassle-free manner, than one can ever imagine. Take the case of the airline industry, taxi cab services, and telecom services — all great examples of the benefit of true competition.”

Says Rajesh Kumar Mediratta, Director Business Development, Indian Energy Exchange, “While it is a welcome move it needs to be supplemented with proper framework. Currently in India for this industry there is no system operator like it is for power trading.”

“Clear separation between content and carriage —‘content’ being gas and the ‘carriage’ being infrastructure. Create independent Transmission System Operator (TSO), if you want the mechanism to succeed,” said a public sector player.

Need for unbundling

“There is also a need for unbundling — transport and gas marketing businesses. Initially, both can functionally be separated and later separated at entity level,” says Mediratta adding that in case of imbalance — for example scheduled supply is different from actual, such imbalances should be priced or treated rationally.” A tough task, but doable is how all stakeholders see it.

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