Small-scale LNG contracts will drive India's gas market expansion: IGX [Gas in Transition]

Indian Gas Exchange (IGX) launched small-scale LNG (ssLNG) contracts on its platform in April following approval from the downstream regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB). IGX expects ssLNG contracts to help expand the gas market beyond traditional in-pipeline gas trading, IGX CEO Rajesh Kumar Mediratta tells NGW.

“Many areas lack access to the natural gas grid, so these contracts help serve the demand for natural gas in those areas by transporting gas by road as ssLNG. They aim to meet future demand, encouraged by government policies promoting LNG-fuelled vehicles and LNG retailing stations along highways,” he says.

IGX also expects city gas distribution (CGD) companies to adopt ssLNG in hard-to-reach areas. Industries shifting to cleaner fuels are boosting demand as well. ssLNG contracts enable the sale of gas from small fields where laying pipelines isn't feasible, Mediratta adds.

In India, natural gas is primarily supplied through pipelines. As a result, industries and commercial establishments without access to the grid rely on trucks for LNG transportation. A wide variety of entities are expected to trade in these contracts. On the sell side, IGX expects to see LNG terminal operators or LNG importers bringing gas to these terminals. The buy-side entities could be CGD sector companies not connected to pipelines, companies involved in LNG dispensing and retailing, LNG truck fleet operators, and large industries relying on ssLNG for operations due to no pipeline access.

IGX, founded three years ago, currently facilitates delivery-based trades across six different contract types, including day-ahead, daily, weekday, weekly, fortnightly, and monthly contracts, allowing trades to be executed for up to six consecutive months.

Initial contract launches at Dahej and Hazira LNG terminals

IGX has obtained approval from the PNGRB to launch ssLNG contracts at Dahej, Hazira, Dabhol, and Dhamra terminals. Initially, these contracts have been launched at the Dahej and Hazira LNG terminals in Gujarat, with plans for expansion to other terminals including Dhamra, Dabhol, Mundra, Ennore, Kochi, and on-land ssLNG stations at Vijaipur. Gail, one of India's largest natural gas companies, in March unveiled India's first ssLNG unit at Vijaipur in Madhya Pradesh.

Mediratta says Dahej and Hazira were chosen to launch these contracts because of their strategic location and existing infrastructure. “Dahej has a top-notch LNG terminal with eight ssLNG truck loading bays and is well-placed near Gujarat's industrial hub. Similarly, Hazira's terminal, also in Gujarat, serves nearby industries and gas distribution networks,” he adds. “Leveraging these locations' infrastructure ensures smooth operations and quick delivery to customers. Plus, their proximity to major demand centres makes them ideal for kickstarting trading activities.”

IGX plans to launch the ssLNG contracts at the Dabhol terminal in Maharashtra after the monsoon season. “Dabhol is operational but closed during the monsoon; we'll launch contracts there after the current monsoon season is over, towards Q3. Dhamra's terminal is operational, but liquidity is still building up. For other terminals like Chhara, Mundra, and Kochi, we have submitted applications seeking regulatory approval,” Mediratta says.

Dhamra LNG Terminal Private owns and operates the Dhamra LNG terminal with a peak capacity of 6.5mn tonnes/year within Dhamra Port, Bhadrak District, in the eastern Indian state of Odisha. The terminal, which became operational last year, will see its capacity expanded to 10mn tonnes/year in the next phase.

Significant growth expected in India's ssLNG sector

IGX remains extremely optimistic about the ssLNG sector in India and expects significant growth in the coming years, driven by increasing demand for LNG. “In FY24, India saw record-high LNG imports, reaching 85mn m³/day, up from 72mn m³/day in the previous fiscal year. This trend is expected to continue, supported by lower prices and rising demand. With domestic gas production plateauing in FY25-26, India's demand will increasingly rely on LNG imports. This creates an opportunity for the ssLNG sector to thrive, especially in areas without pipeline infrastructure,” Mediratta says.

In FY23, about 0.7mn m³/day of LNG was transported by road and consumed in India, equivalent to 0.4% of current natural gas consumption. According to IGX, demand is projected to reach around 5mn m³/day in the next five years. The Indian government plans to introduce over 500 LNG dispensing stations nationwide, boosting demand for the ssLNG segment.

Growth in the industry will be driven by various factors. On the demand side, the operationalisation of all auctioned CGD licences, with many expected to deliver gas to customers via the ssLNG route until pipeline connections are established, will be a major contributor, IGX says. Industries shifting to cleaner fuels, especially with expected low/subdued gas prices, and the demand for LNG in transportation will also fuel growth. On the supply side, the establishment of new LNG terminals and FSRUs, as well as LNG retailing stations on highways, will play a role.

“On the regulatory and policy front, the inclusion of natural gas under the goods and services tax (GST) regime and open access to large consumers in CGD areas has been a long-standing demand from stakeholders. If implemented, this could streamline trading, reduce costs, and promote transparency in the sector, thereby fostering growth,” Mediratta says.

In India, natural gas, along with petrol and diesel, is currently outside the ambit of GST, and existing legacy taxes—central excise duty, state VAT, central sales tax—continue to be applicable on the fuel. VAT on natural gas varies from state to state, and is in the range of 14% to 24%. Bringing the commodity under GST has been a long-standing demand of the industry. Recent media reports suggest a revival of discussions on including natural gas under GST after previous unsuccessful attempts.

Another factor that could give a leg up to the ssLNG sector is the government’s intention to make the regulatory framework more market and consumer-friendly, potentially through revisions in access rules and bringing LNG terminals under the regulatory purview.

“Such regulatory reforms can create a more conducive environment for industry participants and attract investments,” Mediratta adds.