Union Petroleum Minister Dharmendra Pradhan on Monday inaugurated the country’s first Indian Gas Exchange, a natural gas trading platform, owned by the Indian Energy Exchange (NSE: IEX).

The platform is primarily aimed at enabling short-term trading of imported domestic gas. Prices are fixed by the government every six months. Imported LNG is mostly bought and sold long term, but there is some sold on the spot market too.

India consumes roughly 160 million standard cubic feet per day (MMSCMD) of natural gas, 51 per cent of which is imported in the form of LNG. About a third of the imported LNG is sold in the spot market, rest over long-term contracts.

The IGX aims to win over the spot buyers and sellers to the platform.

Exchanged-based trading offers several advantages over bilateral trades. First, LNG producers from abroad can now offer to sell gas in smaller quantities, if need be, and for shorter delivery timelines. Currently, the IGX allows LNG trades for deliveries up to one month, but IEX officials have said that in course of time, transactions would be allowed where the gas would be delivered any time within six months.

Second, the exchange makes way for market-based price discovery. Also, since the deals on the IGX are denominated in rupees rather than dollars, the element of foreign exchange fluctuation is also removed.

The opportunity to buy smaller quantities, quickly delivered, makes way for gas consumers — such as fertiliser companies — to benefit from low international prices of gas.

Rajesh Mediratta, Director, IGX, told BusinessLine that market discovery of prices offers scope for the government to do away with the periodic fixing of gas prices. For instance, LNG prices today hover around $2 a MMBTU, an attractive price which would not be available to those who are buying the gas on long-term, fixed-price contracts.

Mediratta said on Monday that the exchange already had registered 12 members (traders) and about 350 clients. He said that city gas companies and fertiliser manufacturers showed much interest in buying gas on the exchange - which could often be much cheaper than long-term contracts.

The Indian Gas Exchange will offer six market products beginning from day-ahead market and forward contracts including - daily, weekly, weekday, fortnightly and monthly at three physical hubs in Dahej, Hazira in Gujarat and Odoru in Andhra Pradesh to begin with while it is planned to add more hubs soon.

There is enough spare pipeline capacity in the country for delivery of gas from the terminals to consumers, officials said at a press conference today. Speaking at the launch, Dinesh K Saraf, Chairman, Petroleum and Natural Gas Regulatory Board, urged Minister Pradhan to push for inclusion of natural gas into the GST regime.

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