where are all the new investors?, page-14

Gents,
Some recent research by MLynch is using an assumption of over $10/1000cft over the next five years - heres an extract - but overall the forward irr of SEH is going through the roof - previous estimates were working off $7.50 per 1000 cft;--
High transparency/oil-price link formula are key
The National Development and Reform Commission (NDRC) published in detail,
on 27 December 2011, a new natural gas pricing mechanism – and selected
Guangdong and Guangxi as the first two provinces to introduce the mechanism.
We are very excited and surprised by this bold move. The Chinese oil sector,
particularly PetroChina, should benefit substantially from this reform. There are
two key points in the reform: (1) it is the most transparent energy pricing system
with a clear pricing formula; (2) it identifies LPG and fuel oil as the benchmark
natural gas fuels to establish the oil-price link formula for determining the gas
prices.
Three uncertainties in the new mechanism
The only major uncertainties in the new gas pricing mechanism are: (1) the
announcement that the government would also consider social affordability and
gas pricing formula to set the final gas prices; (2) the timeline for rolling over the
new gas pricing mechanism to other provinces; and (3) whether the new gas
prices would apply to new or existing volume only. While we believe these three
issues are valid concerns, however, it should not dilute any reading of the
commitment of the Chinese Government to move the gas prices.
The long term national average gas prices might double
We have developed an approach to understand what affordability means for the
NDRC based on the current economic conditions. We use Guangdong and Guangxi
gas prices as benchmarks. For provinces which have GDP/capita higher than
Guangdong, we assume those gas prices will convert to the Guangdong prices in
five years. For provinces with GDP/capita below Guangdong and above Guangxi,
we assume those gas prices will convert to Guangxi prices in five years. For those
provinces which have GDP/capita lower than Guangxi, we assume prices will
remain at the current national average. With the above methodology, we have
arrived at national average gas prices of Rmb1.9/cm (US$10.7/mcf), 76% and
33% respectively above the current realized prices and our long term gas-price
assumption.