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Now a gas trading exchange meant for domestic gas market

The gas trading exchange is expected to be rolled out by the year-end and will help discover the market price for gas locally, while rendering the current gas price formula and ceiling redundant

Now a gas trading exchange meant for domestic gas market

New Delhi: A major gas-pricing reform is in the pipeline as the government is planning to allow trading of all domestic supply on a local gas trading exchange. The gas trading exchange is expected to be rolled out by the year-end and will help discover the market price for gas locally while rendering the current gas price formula and ceiling redundant.

Sources familiar with the development said that a proposal to allow the trading of all gas produced in the country on an exchange has been prepared and will be forwarded to the Prime Minister’s Office (PMO) for a final nod.

The beneficiaries

The move is expected to benefit all producers to whom the formula price or ceiling applies today. While fields that have marketing freedom will be able to switch to platform trading immediately after the announcement is made, those bound by contractual obligations can start selling gas on the exchange after the agreement expires. Sources said that producers will not be forced to use this platform and it will only act as an alternative. “The exchange will be a parallel platform for local price discovery of domestic gas. So, instead of having a formula based on prices from different parts of the world, we would have our own price discovery,” the source said.

A political call

“If we are ultimately going to have this would be a political call,” a source said. “Most of our domestic gas is allocated by the government for various purposes such as city gas, fertiliser plants or energy. So, the government will have to decide if it can fully stop allocating or reduce it to a large extent so that proportionate gas is available for trading at an exchange,” the source added. According to the sources, the move has been prompted by the need to attract more investment in the sector which could have only been achieved by ensuring market rates for gas. It is, however, going to be a tight ropewalk as the government will try to balance other interests, like making available cheaper fertiliser or energy to people.

The current formula

The current formula involves taking prices from four key global gas markets to decide local rates every six months and applies to most gas producers in the country. There are some who enjoy market freedom, like the ones whose fields are located in deep-sea and other difficult areas but they are bound by a government-determined price ceiling based on the rates of imported alternative fuels.