From ideation to actual implementation of IGX, how was the journey?
Across the globe, natural gas is gaining popularity as a critical component of a sustainable energy future. And therefore, Government of India has set out a vision to increase the share of gas in the energy mix from around present 6% to 15% by 2030. Indian Energy Exchange (IEX), the parent company of IGX, envisions to develop next-generation solutions for sustainable energy ensuring competitive, transparent, and reliable access. We feel markets are critical in giving the necessary push for growing the gas industry in India and we felt it to be an opportune time to launch the platform. This also presented us with an excellent opportunity to increase IEX’s sphere in the overall energy industry in India. The launch of IGX was backed by the rigorous preparation over the last 1-2 years.
While preparing for the launch we invested a significant amount of time in understanding the critical issues of the gas market in India and connected with all the stakeholders of the ecosystem from regulators to the participants from the entire gas value chain. We have put in great efforts in hiring the right talent, building new-age tech infrastructure and creating strong systems & processes that will serve the requirements of customers and other stakeholders. After having contracted for best software partner, we commenced our membership drive in February this year.
All our years of efforts culminated into a successful launch and we have received great response from across the stakeholders including the government and market participants. We already have 13 members and 500+ clients on board. Growing number of clients has also helped us maintain ample buy side liquidity on the exchange and IGX had traded 9600 MMBTU in the first month itself.
What was your objective behind launching IGX?
India’s gas market is poised for 2.5X growth by 2030. To undertake 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. Therefore, seeing it a supportive initiative and synergic with our vision and overall strength, we decided to evolve and develop IGX. We hope that IGX by creating transparent marketplace will help expand gas-based economy. Buyers do not have choice of buying in shorter durations as they are able to procure other liquid and solid fuels, will be able to buy from daily, weekly and fortnightly tranches depending on their needs.
Please share with us more about IGX? Where will it be based out of? How is it going to function?
Indian Gas Exchange 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. Through its trading system, IGX facilitates automated trading where multiple buyers and sellers can trade for physical delivery of natural gas. It invites time scheduled bids from buyers and sellers, on which competitive price could be discovered to settle delivery of gas.
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 & settlement along with risk management.
What are the Gases that will be traded in IGX? Are there are plans to add few more, if yes please elaborate?
IGX is primarily for trade of natural gas which is predominantly methane and contains a small mix of other higher alkanes. We will add more petroleum products including LNG over period of time.
How can a participant trade in IGX?
In order to participate in the trade, one has to first either register as a direct member on IGX platform or become a client with an already registered trading member. Moreover, IGX is a delivery based platform, therefore it is necessary that the participant should be a physical consumer or marketer or producer.
How do you see Indian gas industry benefiting from IGX?
IGX endeavours to create a marketplace which offers transparent, neutral and competitive platform along with providing various options to procure gas in shorter time frames throughout 365 days a year. This ensures that the buyers can procure gas in the most flexible manner without getting burdened with rigid contracts. This will help expand demand. In fact, these aspects have become more crucial during current times when industries are looking to improve efficiencies. 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.
In the past Exchanges have ceased trading leaving the participants in lurch, how would you ensure trading in IGX is safe for the participants?
In delivery-based exchanges, such eventualities do not arise. Professionally managed delivery platforms do have systems for closure of open contracts. At IGX, we have incorporated best practices in our operations and processes to remove possibility of any risk to our participants including counterparty risks.
What are challenges faced by Exchanges in India? What kind of support do you expect from the authorities?
We expect the government support from the regulatory and policy standpoint. Critical enablers such as uniform taxation under GST and an independent system operator will greatly help the exchange to offer maximum benefits to its market participants while building a strong credibility. Other enablers such as open access on pipelines, streamlining of pipeline capacity booking and fixed allocation of LNG terminal capacity on common carrier principle would also greatly benefit the overall gas market expansion in India.
The issuance of draft proposal for unified tariff on gas pipelines which is expected to be rolled out in September 2020 and the recent Petroleum and Natural Gas Regulatory Board (PNGRB) announcement on draft regulations for gas exchange are a step in a positive direction.
What are your growth plans for IGX for the next three years?
In the short term to medium term, we aim to add three more hubs which is dependent on the development of the gas infrastructure. In terms of trade volume, we are looking at capturing 2-3% of the spot market in one year and moving forward we will focus on increasing this share further so that we may reach our target of 50% of the spot market in the next five years. We may also consider expanding our product portfolio with new products like Furnace Oil and other petroleum products, however, that is a long-term plan.
