IGX targets 50% of spot market in next 5 years

India is committed to a vision to increase the share of gas in energy mix from around present 6 percent to 15 percent and our market is poised for 2.5-times growth by 2030.
Rajesh Kumar Mediratta, Director, Indian Gas Exchange (IGX)

In June, Indian Energy Exchange (IEX), India’s leading energy market platform, announced the launch of Indian Gas Exchange (IGX) – first nationwide online delivery-based gas trading platform. In short span of time, 13 members and 500 clients have already registered with them, informed IGX’s Director Rajesh Kumar Mediratta in an interview with EPR.

Can you elaborate on the working of IGX and its various details? What’s the business model?
Indian Gas Exchange (IGX) is India’s first delivery based automated gas trading platform that aims to provide transparency and competitiveness in pricing, flexibility in procurement, security, and easy market access to participants in the gas value chain.

The platform features multiple buyers and sellers to trade in spot and forward contracts at designated physical hubs and enables efficient and competitive discovery of gas prices. Powered by the cutting-edge technology and a customer centric web-enabled trading interface, the technology infrastructure will be able to manage trade in large volumes. It currently offers 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 KG Basin in Andhra Pradesh. Since the launch, we have seen great participation from all stakeholders as we already have 13 members and 500 clients registered with us.

The platform aims at providing end-to-end support to market participants from aggregation of bids to price discovery to clearing and settlement along with risk management. The revenue model of the company is based on a transaction fee of Rs 5/MMBTU for ex-delivery contracts and Rs 7/MMBTU for delivered contracts. Additionally, the company also charges an upfront membership fees and annual subscription fees.

How has the response been since its launch and what are the benefits that it has offered to the participants?
Since the launch of IGX, we have seen a lot of interest from all stakeholders in the ecosystem – be it customers, industry bodies or the government. This is evident from the fact that we already have 13 members and 500 clients on board. We are seeing ample buy side liquidity on the exchange and have traded 9,600 MMBTU in the first month itself. There are some challenges on the supply side due to the COVID-19 crisis which has led to delays in internal approvals and legal requirements. We recently signed GTAs with GAIL and PLL and these are a step in the positive direction and will help increase the traded volumes soon. The Draft Regulations on Gas Exchange, recognizing the role of gas exchange is also providing additional comfort to the participants in the sector.

How can the gas industry benefit from this exchange?
India is committed to a vision to increase the share of gas in energy mix from around present 6 percent to 15 percent and our market is poised for 2.5-times growth by 2030. To realise such an increase in the share of natural gas, markets are an imperative to generate effective signals and provide an investment boost across the value chain. We will endeavour to create a market-friendly marketplace for transparent, neutral, competitive platform and will all sorts of options to procure gas in shorter timeframes like day, week, fortnight and monthly so that industry can buy in most flexible manner and as per its requirement without tying up in rigid and burdensome contracts. This will help expand demand. The flexibility to buy in small quantities and in shorter timeframes will be more important during such times.

Further, Indian gas industry will have clear price benchmarks which are market determined and competitive. This will help build gas ecosystem including infrastructure and demand.

How many hubs do you currently have and what was the idea behind choosing them?
IGX currently has three physical delivery hubs at Hazira and Dahej in Gujarat and KG Basin in Andhra Pradesh. The hubs that we have chosen are at the cross-section of multiple buyers and sellers. They already have a robust pipeline infrastructure in place and offer ample liquidity. The KG Basin hub in particular also caters to the free-market domestic gas market. Therefore, the chosen hubs address both imported as well as domestically produced gas.

Are you planning on adding more hubs?
We already have plans to expand to more hubs in the future and will be selecting the hubs which are critical from overall sectoral development perspective and allow for adequate liquidity, thereby aid efficient price discovery. We will be able to share more details once plans are finalized.

Can you share names of some prominent clients and members that are currently registered?
IGX already has 13 members and about 500 registered clients covering all gas consuming sectors such as CGD, fertiliser, power, glass, ceramic etc. Some of the trader members registered with us are GAIL, PLL, Manikaran Power, GMR Energy Trading, Zak Venture, Kreate Energy, Gita Power & Infrastructure, Torrent Power, and Adani Gas.

What are your plans for the exchange for the next few years?
As mentioned earlier, in the short to medium term, we aim to add three more hubs which is dependent on the development of the gas infrastructure.

In the long term, we aim to move to a virtual trading hub model from the current physical trading hub model. While the government has already announced introduction of unified tariff on gas pipelines to be rolled out shortly and Draft Regulations on Gas Exchange, we expect some of the other critical enablers to be in place too in the next few years. These include uniform taxation under GST, an independent system operator, open access on pipelines, streamlining of pipeline capacity booking and fixed allocation of LNG terminal capacity on common carrier principle. There is work in progress on these enablers by the government and once implemented these will be conducive for operating a virtual trading hub.

What’s the volume of business you are targeting?
We are optimistic about the market potential and aim to capture 2-3 percent of the spot market in the next one year and moving forward in the next five years we are targeting 50 percent of the spot market. Moreover, in the next 4-5 years, we may consider expanding our product offerings in addition to natural gas which include new products like LNG, furnace oil and other petroleum products.

How secure is the platform? Do you have adequate security in place to counter cyberattacks?
Security is one of our core value propositions and to ensure that, at IGX , we have implemented multi-layered security perimeters which protect data from cyberattacks. We have access to world-class exchange technology through our partnership with GMEX which leading tech firm in providing advanced product solutions for exchange trading, clearing and settlement. This allows us to foresee and address any technology-related issues using new-age innovations.