How is natural gas traded in India?

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First, we'll talk about how natural gas is traded in India. And then we'll talk about the sparks and stops of the wires and cables industry. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Friday, 7th August. Before we begin, we have a new subtext episode out. We address why so many of India's recent large manufacturing investments like Foxconn are located in Tamil Nadu and how the centre and states work to make industrial policy happen. We spoke with Mausam Kumar, an industrial policy researcher based out of Princeton, to unpack everything and dealing India's manufacturing push. From how state policy complements central policy, bidding wars between states like Tamil Nadu and Karnataka, development finance, how India should handle Chinese FDI, and lessons from economic success stories like Japan. You can watch the full podcast episode below where Mausam breaks down how India's industrial policy really works. And you can also listen to the full conversation on Spotify and Apple podcasts or read the transcript. Coming to the first story. In June 2020, India saw physical natural gas trading for the first time through the Indian Gas Exchange or IGX, the country's only gas exchange. Now, to be fair, it hasn't grown substantially. Last year, IGX handled just 1,924 trades, or about 5 a day. That's the entire organized trading layer for a country that consumed roughly 69 billion cubic meters of natural gas in FY26, importing half of it, and spending a decade calling gas the bridge from coal to solar. India is one of the world's largest LNG importers, and it aims to raise natural gases shared in its energy mix from about 6% today to 15% by 2030 It has 8 LNG import terminals with more capacity than it uses, nearly 26,000 km of transmission pipelines and city gas networks that reach 99% of the population. But only about 3% of the country's gas is actually traded. So this got us scratching our heads when we were reading IGX's DRHB. So, India has the gas infrastructure, every physical piece is in place, so why don't we trade? The answer begins with something unusual. Not all gas in India is legally free to be sold. Let's set the foundation by first understanding where India's gas comes from and where it goes.
So India's appetite for gas has grown steadily over the last many years. Yet, our ability to produce it has been flat. Resultantly, imports which accounted for 33% of India's gas consumption in FY16 have now ballooned to 50% in FY26. So where does all this gas go?
The largest consumer by a wide margin is the fertiliser sector, with roughly a 30% share. So here, gas isn't a fuel, but the feedstock used to make ammonia which is then turned into urea.
City gas distribution, which supplies CNG and piped cooking gas to homes, accounts for another 20% and is the fastest growing segment. Refineries and the power sector make up much of the rest, but their share has been declining. In fact, India's power sector has burned less natural gas every year for the past five years. Now that's a little counterintuitive. Gas was supposed to be the transition fuel. Because gas-fired plants can ramp generation up or down within minutes, they're an ideal partner for solar and wind whose output changes with the weather. They can quickly fill the gaps when renewable generation fails. But in India, gas has been losing ground anyway. And that's not because the country is shutting down gas plants. It's because we are generating far more electricity from increasingly cheap solar and wind, while imported LNG has remained too expensive to compete with coal whenever additional generation is needed. As a result, gas plants are simply being used less often. So today, gas generates only about 5% of India's electricity, and partly because of this, India's gas consumption has grown at just 3.17% a year over the past decade, while meeting the government's 15% target would require growth closer to 11.7% annually. Now, closing that gap somewhat depends on gas becoming cheap enough that industries actually want to use it, which raises an awkward question.
How does an Indian buyer even know what gas should cost? For most of the gas in this country, nobody ever finds out. The price is either set by a government formula or negotiated privately between two large companies and never published. That's where gas trading and pricing come in. So for gas to be traded and eventually priced by the market, you first need someone who's free to sell it. As we saw earlier, about half of India's gas supply comes from domestic production. So India's gas is produced by domestic firms like ONGC and Oil India. But if ONGC extracts a million units of gas tomorrow, can it simply sell that gas to whoever it wants?