Indian Gas Exchange (IGX) – THE NEW KID ON THE BLOCK

Indian Gas Exchange (IGX) has become the new talk of the town. Prominent leviathans such as Adani Total, Torrent Gas, GAIL and ONGC have jumped on the IGX bandwagon as strategic partners by acquiring 5% stake each at undisclosed valuations. Moreover, word on the street is that National Stock Exchange (NSE) is also likely to scoop up a whopping 26% stake.

In today’s blog, we dig deeper to understand - why these corporate giants are craving for a piece of the IGX pie?

Natural gas is the cleanest-burning hydrocarbon. It provides warmth for cooking/heating as well as fuels power stations that furnish electricity to homes and businesses. It fuels many industrial processes that produce materials and diverse goods like glass, clothing, plastic, paints, etc. It can also be converted to make lower-emission fuels and other products. Therefore, it is versatile, flexible, environment friendly and in some cases cheaper to produce in comparison to coal. Natural gas is often praised as a clean energy alternative.

India is home to 22 of the world’s 50 most polluted cities and India aspires to drastically reduce its carbon footprint by 35% below 2005 levels, as a part of its commitment to the United Nations Framework Convention on Climate Change.

Natural gas plays a critical role in this scenario. Its share in the primary energy mix has declined from 10% in 2010 to 6.2% in 2017. The plunge has been mainly due to the reduced supply of domestic gas and unaffordability of imported Regasified Liquefied Natural Gas (RLNG).

The Indian government has been striving to shift the energy mix for years. They aspire to increase the share of natural gas from the current 6.2% to 15% by 2030. As per the recent budget, they plan to undertake significant investments for expanding the gas pipeline infrastructure.

To echo a small section from the latest issue of ‘Gas Connect’ -

“The government’s vision for a gas-based economy is closely interlinked with a liberalization agenda for the gas market. The growing liquidity of the global gas market with ample uncontracted supply of LNG, should be seen as an opportunity to fast-track gas market reforms, as they can hugely benefit consumers, reduce import bills and support economic recovery. In essence, the establishment of a liquid wholesale market would foster competition among suppliers, improve the efficiency of resource allocation, and ensure transparent price discovery.”

This is where IGX comes in.

Indian Gas Exchange (IGX) was launched on 15th June 2020, as a wholly owned subsidiary of the Indian Energy Exchange (IEX). IEX is India’s premier energy exchange - providing a nationwide, automated trading platform for physical delivery of Electricity, Renewable Energy Certificates and Energy Saving Certificates.

What set the ball rolling for IGX was that in December 2020, they secured authorization from Petroleum and Natural Gas Regulatory Board to operate as a Gas Exchange for a period of 25 years. Hence, IGX became India’s first and only automated nationwide delivery-based gas trading platform. It offers a neutral and transparent market place to buyers and sellers for trading in standardized gas contracts enabling efficient and competitive discovery of gas prices in India.

Their platform is fully automated with web-based interface to provide seamless trading experience to the customers and is powered by best-in-class technology from GMEX, one of the world’s leading digital exchange trading and post trade technology providers.

In less than a year, their platform has amassed 16 members and more than 500 registered clients covering various gas consuming sectors. It facilitates the delivery of gas at three delivery hubs – Dahej, Hazira in Gujarat and Kakinada in Andhra Pradesh and has already traded 75,000 metric million British thermal units (MMBTUs) since launch.

IGX has in place a unified tariff structure for gas pipeline transportation, which is an imperative stride towards the establishment of a liquid wholesale market. This can serve as an anchor for both domestic and import gas prices, providing an alternative to other pricing mechanisms. The competitive price discovery will facilitate availability of gas at lower prices for cross-spectrum of industries across India, stimulate demand and facilitate greater investments in domestic gas exploration.

IGX intends to play a pivotal role in the development of India’s gas market which is thoroughly aligned with the government's vision of a gas-based economy. They will enable efficient price discovery, thereby increases the accessibility and transparency of the power market in India while simultaneously enhancing the speed and efficiency of trade execution.

CONCLUSION

A quote by renowned author Martin Ford comes to mind - 

“One of the obvious implications of a potential intelligence explosion is that there would be an overwhelming first-mover advantage. In other words, whoever gets there first will be effectively uncatchable.”

IGX’s parent company IEX is the epitome of first mover advantage.

Indian Energy Exchange (IEX) was founded in 2008 and became the first energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity. Today they rule the roost with a formidable ~97% market share and possess a diverse registered base of more than 6,700 participants. They have been debt free for the last decade, while their revenues and profits have burgeoned at a CAGR of 22% and 25% respectively. Their stock has proven to be an exceptional compounder of wealth over the years, handsomely rewarding long term investors.

To parrot Mark Twain, “History doesn’t repeat but it often rhymes.” With first mover advantage, cutting edge technology, conducive regulatory framework, rich experience of IEX and adroit strategic partners backing IGX, it could very well shape up to become an impregnable monopoly in the years to come. Ergo, keep a close eye on this enterprise.

That’s all folks!