AUGUST 2020, ISSUE 05

GAS
Connect
N E W S , I N S I G H T S & A N A LY T I C S

IN THIS ISSUE...

Dear All,

A month into the launch of IGX and we have seen a lot of interest from all the
I. Industry Highlights – 02
May 2020 stakeholders in the ecosystem – be it customers, industry bodies or the government.
Although we are just at the beginning of our journey, we have already signed 500+ clients
and 13 trader members.

Undoubtedly, the introduction of a gas trading exchange into the ecosystem is a

II. Regulatory News 03 significant step towards realising India’s vision to become a gas-based and sustainable
economy. A regulatory framework supporting the vision to evolve and facilitate further
acceleration of Indian gas industry’s growth, is an imperative. The recent Petroleum and
Natural Gas Regulatory Board (PNGRB) announcement on draft regulations for a gas
exchange that will trade physical contracts, is a good step in this direction.
III. Media Pulse 05
At this juncture, it will also be useful for us to look at gas trading exchanges around the
world and learn from them. In his insightful article below, Hirander Misra, Chairman,
GMEX Group and GMEX Technologies, has shared some observations on the global
natural gas market.
IV. IGX Buzz 06
We hope you’ll find this edition of Gas Connect engaging and useful. We look forward to
your continued support, as always.

With regards,
V. Leaders Speak 07
Rajesh Kumar Mediratta
Director, IGX

1
INDUSTRY HIGHLIGHTS – MAY 2020
 Grossproduction for the month of May 2020, was Major sector-wise consumers included:
74.1 MMSCMD (decrease of 16 % YoY)
a) Fertilizer (32%)
 Total
imports of LNG (provisional) during the month of
May 2020, were 76.8 MMSCMD (increase of .5 % YoY) b) Power (18%)

 Natural
gas available for sale during May 2020, was c) Refinery (19%)
133.32 MMSCMD (decrease of 8% YoY)
d) City Gas Distribution (CGD) (11%)
 Totalconsumption during May 2020, was 157.13 MMSCMD
(provisional) e) Petrochemicals (8%)

DOMESTIC NATURAL GAS GROSS PRODUCTION LNG IMPORTS

In MMSCMD Pvt./JVs Oil ONGC In MMSCMD
76.9

52.1
45.3
76.5

6.0
5.9
10.4
5.3
May 2019 May 2020 May 2019 May 2020

SECTORAL CONSUMPTION OF NATURAL GAS

Qty. in MMSCMD R-LNG Consumption Domestic Gas Consumption

32%

24.3

19%
11%

10.7
18% 24.9
23.4 6.3 8% 11
2.1
12.4 17
9.9
5.2 7.0

Fertilizer Power Refinery CGD Petrochemicals Others

Source: PPAC.GOV

2
REGULATORY NEWS

MAJOR NATURAL GAS PIPELINE NETWORK AS ON JUNE 1, 2020

Nature of Pipeline GAIL Reliance GSPL ARN^ DNPL IOCL Total

Length
(Km) 12,160 1,480 2,692 215 192 163 16,905
Natural Gas
Cap
(MMSCMD) 246 67 43 6 1 22 385

Excludes CGD Pipeline Network, Source: PPAC

*

EXISTING LNG TERMINALS & ITS CAPACITY

Capacity Utilisation in %
Location Promoters Capacity as on May 1, 2020
April 2020

Dahej Petronet LNG Ltd. (PLL) 17.5 MMTPA 3%

Hazira Shell Energy India Pvt. Ltd. 5 MMTPA 5.5%

Dabhol* RGPPL (GAIL-NTPC JV) 5 MMTPA 2.7%

Kochi Petronet LNG Ltd. (PLL) 5 MMTPA 0.1%

Ennore Indian Oil LNG Pvt. Ltd. 5 MMTPA 7%

Mundra GSPC LNG Limited 5 MMTPA 2%

Total Capacity 42.5 MMTPA

To increase to 5 MMTPA with breakwater

*

Source: PPAC

DOMESTIC NATURAL GAS & GAS PRICE CEILING – APRIL 2019-SEPTEMBER 2020 (GCV BASIS)

Domestic Natural Gas Price in US$/

Period Gas Price Ceiling in US$/MMBTU
MMBTU

April 2019-September 2019 3.7 9.3

October 2019-March 2020 3.2 8.4

April 2020-September 2020 2.4 5.6

Source: PPAC

3
SUMMARY: PNGRB DRAFT REGULATION ON GAS EXCHANGES

Reuters, June 11, 2020

 PNGRB has web hosted Gas Exchange Regulations (Draft), 2020, for public comments on July 10, 2020. This regulation is intended
to regulate the establishment and operation of gas exchange. Key takeaways of the draft regulations are as follows:

# Area Key Points/Highlights

1. Market Design

a. Products The Gas Exchange Regulations shall apply to the following set of contracts:
a. Delivery-based contracts transacted on the Exchange:
• Day-Ahead contracts
• Intraday contracts
• Term-ahead contracts
b. Pipeline capacity contracts
c. Any new contract linked with natural gas transacted on the Exchange
d. Any new contract in pipeline capacity trading, forwards, futures, gas price indexing, gas balancing
and other areas
e. Derivative contracts for natural gas, as and when PNGRB is empowered to regulate by
regulations licensing of derivative contract exchanges

b. Price discovery • The bidding mechanism can be auction and/or continuous trade process
mechanism • The economic principle of social welfare maximisation and to create buyer & seller surplus,
simultaneously during price discovery

c. Delivery • Incorporation of System Operator (NGGMS)

procedure • In case of congestion in natural gas pipelines, curtailment sequence, as specified in the Access
Code shall be adopted by NGGMS

d. Membership Membership in gas exchange shall be of the following categories:

I. Trading Members
II. Clearing Members
III. Trading and Clearing Members
IV. Proprietary Members

2. Shareholding Pattern of Gas Exchange

• Member shareholding (directly or indirectly) limited to 5%

• All members aggregated shareholding limited to 49%
• No entity can hold more than 15%, except
Promoters, non-members (who may hold >15%), however will be required to bring it down to max 15% in 5 years

3. Governance Structure

Composition of the Board of Directors:

a. Shareholder Directors;
b. Independent Directors; and 
c. A Managing Director.
• Independent Directors shall not be less than Shareholder Directors
• No trading member shall be on Board of Directors
• Appointment of Independent Directors shall be subject to the fulfilment of other requirements and to the satisfaction
of PNGRB 

4
CONSUMERS MAY SOON GET TO CHOOSE PIPED GAS SUPPLIERS

IANS, July 7, 2020

https://energy.economictimes.indiatimes.com/news/oil-and-gas/consumers-may-soon-get-to-chose-piped-gas-
suppliers/76830606#

 Thegovernment is set to throw open city gas distribution (CGD) networks across the country to competition, allowing participation
of more than one player in a circle, vying to attract consumers.

 “Wehave finalised regulations on allowing competition in CGD areas that will be notified in next seven to 10 days,” Petroleum and
Natural Gas Regulatory Board (PNGRB) Chairman D.K. Sarraf told IANS. “The process of having more players in an area can start
soon thereafter as the High Court has not issued any stay on petitions filed against ending the exclusivity period in existing CGD
areas,” he added.

MEDIA PULSE
$140 BN OF FRESH INVESTMENT TO FLOW IN INDIA’S GAS transportation of natural gas for longer distances to boost
INFRASTRUCTURE OVER EIGHT YEARS gas consumption.
ET Energy World, July 3, 2020  Union Minister for Petroleum and Natural Gas, Dharmendra
https://energy.economictimes.indiatimes.com/news/oil-and- Pradhan has said that the government is planning to
gas/140-bn-of-fresh-investment-to-flow-in-indias-gas- rationalise tariffs for the transportation of natural gas to boost
infrastructure-over-eight-yrs/76765179# its consumption in the country.
 The Covid-19 outbreak has accelerated the transition in
 The Petroleum and Natural Gas Regulatory Board (PNGRB)
India’s energy sector with profound implications for the
has also published a discussion paper on moving from a
economy, including addition of $140 billion of new direct
investments in gas over eight years, rise in the employment system where buyers of gas are charged for every pipeline
growth rate by up to 300 basis points and a lower current they use in the system to a single charge across a pipeline
account deficit by an average $4-4.7 billion annually. network. The proposal, the government says, is part of a

 “It
should also lower energy costs for consumers and larger effort by it to boost the share of natural gas in India’s
industrial companies alike, by up to 25 per cent on average, energy basket from around 6 per cent currently to15%
slow global oil demand growth by 10 per cent, and nearly by 2030.
double the market share of gas-powered vehicles in India’s
COVID-19: THE NEW NORMAL IN OIL & GAS RAISES THE
PV sales,” Morgan Stanley Research aid in a report. “More
importantly, we think it will reshape consumer habits as gas NEED FOR AI
becomes their go-to fuel, boosting gas demand CAGR to 8 ET Energy World, July 16, 2020
per cent through 2025.”
https://energy.economictimes.indiatimes.com/news/oil-and-
 The investment banking firm expects gas to account for
gas/covid-19-the-new-normal-in-oil-gas-raises-the-need-
around 10 per cent of India’s primary energy supply in 2025,
up from 6 per cent currently, with renewables at 6 per cent for-ai/76991506
from the current 3.6 per cent.  While the demand is expected to increase as the world shakes
EXPLAINED: GOVT’S PROPOSAL FOR A UNIFIED GAS PRICE out of the pandemic and OPEC+ normalizes its relation and
SYSTEM production quotas, industry players have to be agile and
The Indian Express, July 12, 2020 nimble to survive in the new reality.

https://indianexpress.com/article/explained/proposal-for-a-  They must focus on transforming their value chain and

unified-gas-price-system-6501996/ operations, reducing their cost of production, processing,
 Thegovernment is aiming to cut down the cost of and transportation. AI technologies can play a key part in the
transportation of natural gas by setting a fixed tariff for the transformation of the value chain of the oil and gas industry.

5
IGX BUZZ
IGX EXECUTES GTA WITH GAIL AND PIL
Buyers connected to the natural gas pipeline network of GAIL (India) Ltd. and Pipeline Infrastructure Limited (PIL) can now initiate
Delivered Transactions at the Gas Trading Platform.

IGX ONBOARDED NEW MEMBERS AND CLIENTS

IGX TRADING UPDATES

IGX Trade Details in MMBTU

Product Buy Bids Sell Bids

Daily 85800 27600

Weekday 76000 -

Weekly 179200 8400

Fortnightly 83500 -

Monthly 71300 58900

Total 495800 94900

6
LEADERS SPEAK - A GLOBAL CONTEXT TO VIEW GAS MARKET
- By Hirander Misra, Chairman - GMEX Group and GMEX Technologies

Asian markets, will account for most of the growth in future

LNG imports.

THE INDIAN OIL AND GAS INDUSTRY

India is the fourth-largest Liquefied Natural Gas (LNG) importer

after Japan, South Korea, and China. As a result of consistent
economic growth, the demand for energy in India is anticipated
to grow faster than all major economies. The oil and gas sector
is one of the eight core industries in India and the country’s
economic growth is closely related to its rising energy demand,
making the sector attractive for investment.

The Government of India has introduced various policies to

fulfil increasing demand for natural gas consumption and is
investing in extending gas pipelines across the country as
well as other fiscal incentives. To date, it has attracted both
domestic and foreign investment. 100 per cent Foreign Direct
Investment (FDI) is permitted in numerous segments of the
sector. According to data released by Department for Promotion
of Industry and Internal Trade Policy (DPIIT), the petroleum
and natural gas sector, between April 2000 and March 2020,
attracted US$ 7.82 billion of FDI.
The recent launch of Indian Gas Exchange (“IGX”) marks a
new chapter in India’s gas industry to promote and sustain The US, EU, UK, and Australia have all risen to the challenges
an efficient and robust gas market. IGX will fulfil the demand of developing fully-functional gas market hubs. These hubs
for transparency in gas trading and could transform India’s share the key characteristics of effective gas market hubs
gas market as it will drive sustainability, facilitate industrial yet each one reflects the unique circumstances of its country
competitiveness, deliver efficient utilisation of pipeline or region. International experiences like these can give India
infrastructure, ensure the revival of gas-based power plants and valuable insights into what makes a gas trading hub thrive and
spur investments in the gas value chain. a competitive gas market flourish for the long-term benefit of all
stakeholders.
Following a 4% drop in 2020 thus far as a result of the
pandemic, global natural gas demand is expected to recover Here are some observations on the global trends:
in 2021, as consumption returns close to its pre-crisis level in
 OTC vs Exchange traded volumes
mature markets, and emerging markets benefit from economic
Traded volumes in European hubs are mostly over-the-
rebound and lower natural gas prices.
counter (“OTC”) transactions. IGX has been launched to
The Asia Pacific region accounts for over 50% of incremental provide India with an organised trading platform to facilitate
global gas consumption, driven in most part by the development a much needed organised market. An example of how an
of gas in India and China. They together, with other emerging organised market works follows:

7
 An “organised” market
Upstream Wholesale (trading & supply) Retail
Households
Trader End-supplier
Production Organised Market
Trader (exchange)
Sellers Buyers
1. A. End-supplier
2. B.
Production Import
3. C.
Industry, district heating, power gen.
4. D.
5. E.
... ...
TSO* (balancing)

Production Supplier End-supplier Households

TSO DSO

The IGX digital trading platform provided by GMEX, allows  Growing popularity of exchange trading
buyers and sellers of natural gas to trade in the spot and As markets become more organised, the volume of
forward markets for imported natural gas across three transactions increase due to the centralisation of liquidity.
hubs initially — Dahej and Hazira in Gujarat, and KG Basin Trust and certainty comes with reputable exchange trading,
in Andhra Pradesh. Imported Liquified Natural Gas (LNG) clearing and settlement. As exchange traded spot markets
is regassified and sold to buyers through the exchange, develop, it also provides opportunity for more sophisticated
removing the requirement for buyers and sellers to find each derivatives market development. Henry Hub futures
other in the OTC market. contracts are traded on the CME and ICE exchanges in the
US with European Energy Exchange (EEX) offering a range of
 Oil Indexation versus hub pricing and traded markets
spot and derivatives contracts across Europe.
Oil indexation and hub-based pricing are two competing
India needs to be in a position to drive such a price
price mechanisms. Oil indexation is relatively easier to
discovery process. Other products and services can in
implement and over many decades has been used as a tool
turn be developed, including more sophisticated correlated
for pricing natural gas. However, some proponents argue
financial products, which can be used for risk management
it has failed to embody the fundamental values of the gas
and hedging.
market. This has led to the development of hub pricing,
which advocates argue is less volatile and better addresses Regulations in India for exchange gas trading are being
demand and supply dynamics. developed with policy level oversight from the Ministry of
Petroleum and Natural Gas, with clarity expected in due
Hub-based pricing is an instrument used interchangeably
course. IGX meanwhile facilitates efficient market-driven
with spot or gas on gas competition, and has been
price discovery with a nationwide automated trading
successfully implemented in the U.S. with the Henry Hub.
platform for physical delivery of electricity, renewable energy
While the U.S. market only uses the hub pricing mechanism,
certificates and energy saving certificates.
the European market uses both. In the East Asian market,
hub pricing started with an expanding LNG market. In These developments will architect India as a market-
Japan, South Korea and Singapore, LNG spot market and based gas economy, whilst also leading to sustainable
gas exchanges have seen good growth in recent years. India environmental benefits and become the catalyst for the
aims to capitalise on this growth by embracing a hub pricing liberalisation of gas markets and associated products in
model driven by a digital trading platform and physical hub India. This in turn will expand the market for the benefit of all
development. involved as well as for the economy as a whole.

8
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