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LNG trade: IGX volume on the rise, with prices up to 30% below spot rates
As global LNG prices are ruling high, industrial fuel consumers in India are mitigating the adverse impact on them to some extent by increasing the volume of purchases on the platform of IGX, the country’s fledgling natural gas exchange.
“In a year since trading started on IGX the gas prices discovered have been on average 10-30% lower compared with global spot LNG prices,” Rajesh Kumar Mediratta, CEO & MD of IGX told FE. IGX offers contracts in day-ahead, daily, weekdays, weekly, fortnightly and monthly modes.
The prices on IGX dropped to a low of $6.1/mmBtu in April 2021 when spot LNG was at $10/mmBtu. IGX contract prices have since consistently increased in tandem with the rise in crude oil price and LNG in international markets but have remained lower than the spot LNG prices in the range of $5 to $20/mmBtu.
In October when spot LNG prices touched a high of $35/mmBtu in line with the increase in Brent crude price, IGX prices remained considerably lower at $18.7/mmBtu. In November the spot LNG prices have dropped to $31/mmBtu and the IGX prices were at $27.4 per mmBtu.
“The lower price discovery has increased liquidity on the exchange,” said Mediratta. The trading volumes have risen from 2500 mmBtu in January to 10,00,000 mmBtu in October 2021. “The volumes were positively impacted by the introduction of the open auction that allowed bidders to watch the price quoted by other participants and accordingly revise their bids. It also helped in market price discovery gas at IGX,” Mediratta said.
However, the rising international gas prices have impacted spot LNG prices forcing some customers to shift to long term contracts of over six months and one year. “Some customers have moved to contracts for six months and some to alternate fuels with the increase in spot LNG prices. Spot prices have moved from $5 per mmBtu in February to $35 now. But we believe the prices will again drop after February when winter will end in Europe, America and Northern parts of Asia. IGX prices are beneficial in the long term,” Mediratta said.
According to the ministry of petroleum and natural gas (MoPNG), India has an LNG regasification capacity of 42.5 million metric tonnes per annum (mmtpa) out of which 24.3 mmtpa is utilised and about 50-60% capacity is booked on a long term basis, which leaves close to 40% of capacity for spot RLNG. In comparison countries such as Japan and South Korea have 80% of LNG contracted in long term.
Mediratta believes government notification in August allowing domestic producers of gas to sell 10% of annual production on exchanges will increase the volumes from Q4FY22. This will help companies to bring more acreage under production as they will get market price for their gas compared to the administered price of $2.9/mmBtu.
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IGX has also sought permission from the Petroleum and Natural Gas Board of India (PNGRB) to increase the number of gas hubs to facilitate buying, which will help reduce the cost for buyers as different zones have additional rates based on distance from supply zones. “We are adding four hubs, two each in Uttarakhand and Haryana, two in Gujarat and one in Maharashtra,” said Mediratta.
