IEX launches trading platform Indian Gas Exchange; norms yet to be framed

India’s leading power trading platform Indian Energy Exchange (IEX) launched its natural gas trading platform last week.

Called the Indian Gas Exchange (IGX), it is now looking for trader members and gas buyers. This even as the Petroleum and Natural Gas Regulatory Board (PNGRB) is yet to come out with guidelines for gas trading.

IGX would offer spot and forward contracts at Dahej, Hazira and Kakinada. While Petronet LNG Ltd (PLL) operates an LNG terminal at Dahej, Shell operates another one at Hazira. Kakinada is the landfall point for natural gas being produced from the Krishna Godavari basin.

IGX will be offering a spot contract for the day ahead market, which means gas will be physically delivered the next day. The forward contract is for daily, weekly, monthly and fortnightly markets.

Currently, LNG is not regulated both in terms of supply contracts and pricing while domestic gas prices are notified by the government. Supply contracts for gas produced by government-owned companies are dictated by government norms.

IEX, which has 90 per cent share in day-ahead power trading, is planning an initial investment of Rs 10 crore for IGX over the next five years.

Senior executives said this was planned keeping in mind the growth potential of the gas market. “Gas market in India is poised for a break outgrowth of 2.5 times, from 166 to 380 MMSCMD by 2030. With conducive policies, the share of natural gas in India’s energy basket could double to 15 per cent," said a company executive.

While the current government has been vocal about having a gas trading hub for the past three years, regulations are yet to be framed.

PNGRB is yet to take a call on IEX’s plans. A PNGRB official indicated that they were in the process of coming up with regulations on the gas hub and gas trading guidelines will take shape only later.

GAIL and Oil and Natural Gas Corporation (ONGC) were expected to take equity in the planned gas exchange, which would have helped create a natural gas trading hub.

In April 2018, KPMG came out with an initial report submitted to the PNGRB for the creation of a gas hub in India.

A GAIL official said the company was not against the IEX move so far. "It is a free world. But one has to see the legal validity of such an institution as the regulations by PNGRB are yet not out," said a GAIL official.

The government needs to take a call on whether gas produced out of domestic fields allotted on nomination basis and currently given on priority to notified sectors will be traded.

In a presentation to investors, IGX said an exchange would help in increasing volumes and infrastructure utilization of terminals and pipelines.

"Even small industries can use the exchange to procure gas at competitive prices. This will also help in revival of gas-based power plants. Exchange can provide gas at competitive rates for grid balancing purpose in upcoming high renewable energy scenario,” said the presentation. Peak power from gas and hydro is needed to balance the power grid with a rising share of intermittent renewable.

IGX is also looking at the fertiliser industry and city gas distributors as buyers on their platform.

IEX eyes new tech-based opportunities for next level of efficiency

Indian Energy Exchange (IEX) looks to tap emerging tech-based opportunities like smart power procurement, analytics, new product development, demand forecasting and use of blockchain and artificial intelligence (AI).

By leveraging technology, IEX aims to scale the next level of optimisation and efficiency in operations.

IEX is the biggest player in spot energy trading with a share of 97 per cent. The energy exchange boasts of participation of over 6,500 players, added up by industries, electricity distribution companies (discoms), thermal power generators, renewable energy generators and obligated entities. IEX recorded a compounded annual growth rate (CAGR) of 16.5 per cent in the volume of electricity transactions between FY15 and FY19.

To deepen its presence in power trading market, IEX intends to maximize the participation of discoms and open access volume, introduce long-duration contracts from one to 365 days and tap cross border trade with Nepal, Bhutan, Bangladesh and Myanmar, an investor presentation showed.

In the September quarter, IEX traded 14565 million units (MU) of electricity, marking a growth of 2.9 per cent year-on-year (y-o-y). Its total revenue in the quarter rose 4.7 per cent to Rs 78.7 crore whilst net profit expanded by 14.4 per cent at Rs 48.8 crore.

Overall growth in energy consumption and peak demand during the quarter was subdued at 1.6 per cent y-o-y and 1.1 per cent y-o-y respectively, largely due to changing weather patterns and impact of economic slowdown, specifically manufacturing.

The IIP (Index of Industrial Production) de-growth at -1.1 per cent, in August 2019 was the lowest since November 2012 and more recently, the Reserve Bank of India (RBI) made a downward revision to the GDP (Gross Domestic Product) forecast by 80 basis points to 6.1 per cent for the fiscal year 2020. The effect of climate shift made the country experience September as the wettest month in more than 100 years which led to significant growth of nine per cent y-o-y in hydro generation during the quarter.

Total installed generation capacity increased by 4.6 per cent to 362 Gw. In line with India’s commitment to increase the share of green energy, the renewable capacity increased by 13 per cent y-o-y as of September 2019 to 81 GW from 72 GW in September 2018.

The total volume traded in the electricity market increased three per cent y-o-y in Q2 of FY20. Average market-clearing price during this period declined 18 per cent to Rs 3.16 per unit, offering an opportunity for both commercial and industrial users to procure electricity at lower rates.

IEX logged a robust performance in the term-ahead market where volumes soared 425 per cent during the quarter led by an increase in trade by the distribution utilities in the southern states under the daily and weekly contracts. But REC (Renewable Energy Certificates) volumes were severely impacted during Q2, pulling down the overall exchange volumes by eight per cent.