India Set to Launch Natural Gas Trading Hub

The government plans to launch a natural gas trading hub by October, crea-ting an Indian gas benchmark which will spark a surge in consumption of the cleaner-burning fuel.

Petroleum and Natural Gas Regulatory Board (PNGRB) has sought bids to hire a consultant to help develop a regulatory framework for operationalising the gas trading/exchange hub.

“In order to further boost the consumption of natural gas in the country, the Government is considering the establishment of a Gas Trading Hub/Exchange (GTHE), where natural gas can be traded, and supplied through a market-based mechanism instead of multiple formula driven prices,” PNGRB said in the tender floated for hiring the consultant.

Currently, the government fixes the price of the bulk of domestically produced natural gas. The rate, arrived at using price prevalent in gas-surplus nations of US, Canada, UK, and Russia, is $3.06 per million British thermal unit for six month period beginning April 1. In comparison, the cost of imported LNG into India is around $7.5.

“The Government has envisaged ushering into a gas-based economy by increasing the share of natural gas in the primary energy mix of the country from current level of about 6 per cent to 15 per cent by 2030,” PNGRB said.

For this, the thrust is on increasing the availability of natural gas by enhancing the domestic production, encouraging the import of Liquefied Natural Gas (LNG), completion of national pipeline grid and speedier roll out of City Gas Distribution network in the country.

Study on pre-requisites

PNGRB said the Oil Ministry has asked it to initiate steps for framing of necessary regulatory framework to enable the establishment and operation of a GTHE. The regulator said it wants to hire a consultancy firm to provide assistance in carrying out a detailed study on various pre-requisites. PNGRB would visit USA, UK, and Australia, where the gas trading hub is successfully operating, to decide if there is a need to amend existing regulations.

The target for launch of the gas trading hub has been set for October. A hub is used as a central pricing point for a network that could aid better price discovery for domestic as well as imported gas. It isn’t clear if the government would abandon fixing the gas price and allow the rates to be discovered on the hub.

India is not the only country launching trading hub. China plans to launch a natural gas trading hub in Chongqing this year.

The world’s biggest natural gas hub is the Henry Hub in the US state of Louisiana. Gas delivered at this point is the basis of most US natural gas futures. Aiding Henry Hub is vast domestic production and consumption as well as the world’s biggest and most freely accessible pipeline network, which stretches into Canada and Mexico. Britain has National Balancing Point (NBP) as the main gas hub.