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India’s first gas exchange

  • Category
    Economy
  • Published
    25th Jun, 2020

The government has launched the Indian Gas Exchange (IGX), India’s first gas exchange.

Context

The government has launched the Indian Gas Exchange (IGX), India’s first gas exchange.

About

  • The Indian Gas Exchange is a digital trading platform that will allow buyers and sellers of natural gas to trade both in the spot market and in the forward market for imported natural gas across three hubs:
    • Dahej and Hazira in Gujarat
    • Kakinadain Andhra Pradesh
  • Imported Liquified Natural Gas (LNG) will be regassified and sold to buyers through the exchange, removing the requirement for buyers and sellers to find each other.
  • Indian Energy Exchange, the country's largest electricity trading platform, is the parent of the gas exchange.

Quick facts on Natural gas

  • Natural gas is the earth's cleanest burning hydrocarbon.
  • Residue: It’s combustion does not produce ash residues, sulphur oxides, and only negligible nitrogen.
  • Formation: Natural gas forms organically over millions of years from decomposing plant and animal matter that is buried in sedimentary rock layers.
    • Once formed the gas tends to migrate through the pore spaces, fractures, and fissures in the sediment and rocks.
  • Component: Methane, or CH4, is the primary component of natural gas.
  • When it is found in nature, raw natural gas may also contain some mixture of butane, propane, and pentane gasses, as well as some nitrogen, carbon dioxide, and water vapour.
  • India is the biggest emitter of greenhouse gases after the US and China.

What about domestically produced natural gas?

  • The price of domestically produced natural gas is decided by the government.
  • It will not be sold on the gas exchange.

How is domestic production of gas?

  • Domestic production of gas has been falling over the past two fiscals as current sources of natural gas have become less productive.
  • Domestically produced natural gas currently accounts for less than half the country’s natural gas consumption; imported LNG accounts for the other half.
  • LNG imports are set to become a larger proportion of domestic gas consumption as India moves to increase the proportion of natural gas in the energy basket from 6.2% in 2018 to 15% by 2030.

Significance of the initiative

  • Transparency & growth: The exchange is expected to facilitate transparent price discovery in natural gas, and facilitate the growth of the share of natural gas in India’s energy basket.
  • Fair price: Buyers do not have to contact multiple dealers to ensure they find a fair price.
  • Boosting usage: The exchange will help bring down the price of natural gas through competitive trade, boosting usage in the country that relies heavily on cheaper coal for its energy needs.
  • Greater flexibility: The exchange also allows much shorter contracts – for delivery on the next day, and up to a month – while ordinarily contracts for natural gas supply are as long as six months to a year. This will allow buyers and sellers greater flexibility.

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