But, it can be booked on behalf of buyers and sellers without really the need to own them at present since we have an excess capacity.
As India aspires to increase gas consumption to 15% of its energy mix by 2020 from 6.2% at present, the Indian Gas Exchange (IGX) launched recently is expected to facilitate gas supply to buyers who aren’t at ease with technicalities of bilateral agreements. Rajiv Srivastava, managing director and CEO of Indian Energy Exchange, told Vikas Srivastava in an exclusive interview that IGX will provide the transparency, ease and flexibility to buyers and sellers and allow open market price discovery in rupee terms even for supplies from global market. Edited Excerpts:
How do you see the IGX evolve over the coming years as far as clients, volumes and pricing of gas are concerned?
Anyone who consumes any form of energy is a customer of gas as well, because gas is an input for a various industries, whether it is fertiliser, glass, ceramic, petroleum or automotive. We have got 350 plus customers who have already tied up with us and the customer base is expanding as well.
As far as volumes are concerned, currently India consumes around 153 mscmd of gas, which is 6.2% of the total energy basket. Now if this goes up to 15% as the government wants by 2030, then the total consumption will increase 2.5 times to 380 mscmd. But then the industry demand will also increase, assuming that goes up by two times then the volume of gas will go up to 650 mscmd.
It does not matter if the gas used in the country is domestic or imported, as far as the exchange trade is concerned. Right now 30% of the gas consumed is of short term or one year duration, and which is what our exchange is meant to do, so you can imagine we have 50% of it on day one and this is expected to go up, as the exchange which drives transparency, more people will converge on the exchange.
What is your aspiration in terms of volumes in the first year?
Our aspirations are small in the first year, we just expect to get around 2-3% of the spot market. When you start the business you perfect it, you learn the trade and mature the market. Then there is a possibility of exponential growth as we go ahead.
In terms of discovery of pricing in an open market, what will the absolute prices look like ?
It is very important to understand that the prices will be driven by demand and supply principles on the exchange. When there are multiple buyers and sellers and no one knows who the buyers and sellers are, and it is an open exchange driven phenomenon, then there is complete transparency in the price which is discovered. Then people can buy exactly on exchange-determined price on the basis of demand and supply.
With a strong gas pipeline, City Gas Distribution (CGD) network and LNG Terminals coming up in the country in the next couple of years, do you need to tie up with these infrastructure companies to secure your supplies?
We need to have transmission agreements, which we are doing with all providers right now. But, it can be booked on behalf of buyers and sellers without really the need to own them at present since we have an excess capacity. The 32,000 km of pipeline by 2022 will create an excellent network across the country which can be used to supply gas to any part of India, where the exchange will ensure to efficiently use this network.
How much volumes you see coming to the exchange once the new pipeline, CGD and LNG capacities come up in the next three to four years?
It is difficult to tell how much will IGX contribute to this growth from 6.2% to 15%, but a lot of this will be facilitated by IGX. Once we start to discover the prices in a good way, then the price will become a determinant. Since there are companies who need gas but do not know how to buy gas, they will not need a bilateral agreement, it can be facilitated by the exchange. It will ensure that the trade becomes transparent, easier and flexible.
The expenses on buying a trading platform from a UK-based company, how will it be recovered. And what would the capex be spent on?
It is part of a business investment and the trading margins we are trying to budget for will account for all this investment. I mean the investments made on a business are recovered from a business revenues. My revenue model takes into account all the investments we are making and not just technology, but people investments, the process and upgrade investments.
How many officials and employees you are looking to hire going ahead to operate the IGX?
We are looking to hire talented officers who can help us to set up the company. We already had a sizeable number of people dedicated to IGX. We will continue to acquire people and technology, as they will continue to be the two critical aspect and expense for us.
How is the IGX platform different from IEX and why we could not use the same for gas?
Both the platforms are very different. The IGX is a web-based platform while the IEX is a desktop one. IGX is far more advanced and feature rich in terms of artificial intelligence, it allows block chaining in terms of settlement processes. The ease of use on this platform is great. As the world is moving towards a far more digital and agile architecture, so GMax allows us to be far more agile architecture than ever before.