Indian Gas Exchange readies for debut

India's first natural gas exchange will start operations next week allowing online trading in the country. But state-controlled pricing, inadequate pipeline infrastructure and varying tax regimes across various states complicate the growth of such trading ambitions.

The Indian Gas Exchange (IGX) will start operations on 15 June, the exchange said. The IGX is handicapped by lack of pipeline infrastructure in east India, falling output of domestic gas and a growing dependence on imported LNG, which accounts for over half of domestic demand.

IGX will offer spot and forward contracts at Dahej, Hazira and Kakinada. State-controlled Petronet LNG operates a 17.5mn t/yr LNG import terminal at Dahej and Shell operates a 5mn t/yr terminal at Hazira. Kakinada is the landfall point for natural gas being produced in the Krishna-Godavari basin. Pipeline infrastructure currently being built in the east of the country will further help distribution.

India's LNG receipts in April fell by 29pc from a year earlier to 1.95bn m³ of pipeline gas equivalent (1.5mn t of LNG) in April from 2.76bn m³ a year earlier, according to preliminary figures from the oil ministry. Overall gas consumption dropped to 42.87bn m³ last month from 5.34bn m³ a year earlier and 5.19bn m³ in March. Gross upstream output dropped to 2.16bn m³ in April from 2.66bn m³ a year earlier.

The gas exchange will help coal-bed methane gas producers and small-scale buyers, industry officials said, which will limit volumes traded on the exchange. The government is yet to issue detailed guidelines for gas trading in the country. It has delayed the splitting of state-controlled gas distributor Gail, which controls nearly 70pc of the country's pipeline network, into two companies operating its pipeline and gas marketing businesses. The government has also failed to bring gas under a common goods and service tax rate, which facilitates trading. Gas is currently taxed differently by state governments.

State-controlled gas pricing also inhibits trading with Delhi unable to decontrol fuel prices because of opposition from its power and fertilizer ministries. Indian domestic gas prices were cut by 26-33pc for April-September compared with the past six months. The price of conventional gas produced by state-controlled upstream firms fell to $2.39/mn Btu for the next six months from $3.23/mn Btu in October-March, the oil ministry said.

By S Dinakar