With a population of 1.4 billion, India is a vibrant and a rapidly growing economy. As the third largest energy consumer in the world, and in a quest to achieve energy independence as well as lowering overall carbon emissions, the importance of increasing the share of natural gas in the energy mix is of significant importance to India. Our domestic gas production, which currently stands at about 80 mmscmd, is forecasted to grow by around 50 mmscmd in the next two years. As of today, the total gas consumption is about 164 mmscmd in the period from April 2021 to February 2022 and the contribution of natural gas to the total energy basket stands at 6.2 per cent, which the government plans to increase to 15 per cent by the year 2030.
As per the IEA Report, our energy mix is dominated by coal and oil which together accounts for around 80 per cent of the total primary energy supply. Both these energy sources add to climate challenges. The natural gas is the cleanest available fossil fuel and to ensure that this relatively economical and clean energy fuel reaches consumers across the country, the government has set up 20,000 km of pipelines that are already operational, and an additional 15,000 km of new lines are currently in various stages of completion. Once these pipelines are completed in the next two years, they will join the existing infrastructure, liquified natural gas (LNG) terminals on one side with rapidly expanding city gas distribution (CGD) grids, to help more than 90 per cent of the country’s population in gaining access to natural gas.
A glance at the Indian gas market
Natural gas has myriad applications. Of the lot, the fertiliser industry utilises 30 per cent of the country’s annual consumption, followed by the CGD networks (20 per cent), power sector (16 per cent), refineries (9 per cent), the petrochemical industry (4 per cent) and various others (all of which cumulatively weigh in at 21 per cent). Apart from the end users themselves, the other significant stakeholders in the gas market include the domestic producers like Oil and Natural Gas Corporation, Oil India Limited etc. that supply about 49 per cent of the country’s annual total gas consumption; transporters like Gas Authority of India Limited (GAIL), Gujarat State Petronet Limited, and PIL that operate the gas pipelines to transport the fuel and finally the sellers/marketers like Bharat Petroleum Corporation Limited, GAIL, ArcelorMittal Nippon Steel India, Torrent Gas, Gujarat State Petroleum Corporation Limited, Indian Oil Corporation Limited, and Petronet LNG Limited that actually sell the gas to the consumers.
India’s First Gas Exchange
India’s first gas exchange – India Gas Exchange (IGX) went live in 2020 and so far, continues to be one of its kind. In the last two years since its inception, IGX has grown from strength to strength and has cumulatively traded more than 12.1 million mmBtu (about 300 mmscm) in the fiscal year 2022. Such phenomenal growth is a testament to the competitive price discovery and the potential the Gas Exchanges have in India, as well as the positive impact gas markets can bring to the industry and economy at large. In order to meet the requirements of market participants, the exchange offers flexible mechanisms that facilitate delivery-based trades in six different contracts that include day-ahead, daily, weekday, weekly, fortnightly and monthly at the five different physical hubs of Dahej, Hazira, Dabhol, Jaigarh and KG Basin.
Role of gas market in bolstering India’s gas economy
Prior to India’s first gas exchange becoming operational, the trade of gas in the country was predominately bilateral in nature. This process, although in practice for several years, lacked competitive price discovery, transparency and sellers also risked the default in the payments owed to them by the buyers. The Gas Exchange mitigated these concerns because their functioning is transparent and their operations have to comply with the regulations and gas market policies set in place by the Petroleum and Natural Gas Regulatory Board. The requirement of signing agreements like Gas Sale Agreement and Gas Transportation Agreement has been made redundant by the Gas Exchange, all thanks to their standardised market rules, byelaws, and mechanisms that facilitate settlement and clearing along with facilitation of the trade in forward and spot contracts at the designated physical hubs in a transparent and efficient manner.
The competitive price discovery has been helping in filling gaps in supply and demand and stimulating investments in the entire gas value chain. The Gas Exchange is playing a pivotal role in enabling India’s transition to a gas-based economy by benefiting gas producers, transporters, marketers and consumers through payment security, increased penetration, flexibility in trade, and optimal utilisation of infrastructure and investments through the market-based signals.
The introduction of the Gas Exchange has been made possible by conducive policy and regulatory initiatives. Still much needs to be done to facilitate a quicker development of gas markets. One of such initiative is creation of an independent and autonomous Transmission System Operator (TSO). The gas infrastructure is expansive and is capex heavy to run, maintain and expand. By nature of this fact, the operation of this infrastructure can easily evolve into a monopolistic one, which is not conducive for the growth and evolution of the gas market.
To prevent this from happening, a TSO must be constituted which must shoulder the sole responsibility of operating and developing the gas infrastructure, in addition to providing third party users unbiased access to the pipelines and a transparent regulated tariff that is non-discriminatory in nature. When this happens, many more players will be attracted into investing into the gas sector and development of market, as a consequence of which the liquidity will increase, and a healthy market will emerge.
India has already made some progress in addressing the gaps at both the infrastructure and policy level needed to develop the gas markets. However, apart from unbundling of the marketing and transmission infrastructure and an independent TSO, there is a need for further key policy enablers which are vital to ensure greater competition, better utilisation of pipeline infrastructure, and lower costs for end customers. All these building blocks, cemented firmly together will ultimately form the bedrock upon which a vibrant, sustainable and efficient gas market will be built in India.