Gas price on IGX doubles from April
Domestic rates to be revised upwards from October 1
The average price of natural gas on the Indian Gas Exchange (IGX) has more than doubled from April 2021 and is now trading at around $13.8 per million British thermal units (mbtu) in September 2021.
This reflects the strong demand for spot gas in the market that also saw prices rising on global cues.
According to IGX data, the weighted average price of gas sale in April 2021 stood at $6.1 per mbtu. The price has been on a steady rise every subsequent month and closed August 2021 at 12.5 per mbtu. It is expected that September prices, which are already higher than last month, will maintain the upward trajectory.
Natural gas demand has picked up in Asia and is likely to increase further with the onset of winter in Europe while supply cuts are aggravated due to hurricanes and lower production in the Gulf of Mexico. “Gas inventories are below the five-year average levels in the US and Europe. Gas price in Henry hub is at $5.20 per mbtu, a new high. Prices at local exchanges are higher, mimicking international rates,”
Mohit Kumar, a research analyst at IDFC Securities, told Business Standard.
The maximum trade was registered during July 2021 at 398,550 mbtu. The weighted average price also reached double digits this month and closed at $10.4 a mbtu. This coincided with a shortage of coal due to supply chain constraints and exerted pressure on power distribution companies. They ended up buying from gas-based power plants at a premium.
The volume of trade on IGX has also grown significantly compared to last financial year. The total volume traded in 2020-21 stood at 193,700 mbtu. This has risen 489 per cent to 1,140,450 mbtu till September 2021 during financial year 2021-22.
"If you look at the demand segment, it consists of huge under-utilised/stranded gasbased power plants and of industrial customers with dual feed captive power plants. The other segment would have refineries, fertiliser, and ceramic companies among others," said Gaurav Moda, Leader Energy practice, EY India.
"Around 10-20 per cent of those with captive power plants (that were once running only on coal) have shifted to dual feed option. The swing capacity exists there and they are able to make the most by buying from the market, which is largely industrial consumers,” he added.
While the gains in IGX volumes and price are substantial, it only impacts specific industries such as those in ceramic manufacturing. This is because most of the natural gas in India is sold at prices linked to the administered price mechanism (APM) (for domestic production) or at international spot prices (for imports).
“Volumes at gas exchanges are only 0.2 million standard cubic metres (mmscmd) a day. Total gas consumption in the country is around 140 mmscmd of which half is imported. The remaining 70 mmscmd is domestically produced,” said Kumar.
An upward revision is expected from October 1 this year under the APM, too. According to officials in Oil and Natural Gas Corporation (ONGC) and Oil India, gas prices for them are likely to go up by 50 per cent. This will result in a 10-11 per cent increase in compressed natural gas (CNG) and piped natural gas prices for consumers across the country, according to a report by ICICI Securities.
At present, the domestic gas price is $1.79 per mbtu. The maximum sale price that is allowed for gas produced from high pressure-high temperature, deep water, and ultra-deep-water areas (collectively called difficult discoveries) is $3.62 per mbtu.
According to an analysis by CARE Ratings, 31 per cent of domestic natural gas is used by the power sector, 27 per cent for fertilisers, and 19 per cent in the city gas distribution sector. India meets half of its natural gas requirements via domestic production.