A while ago someone said the Indian economy was too weak to justify the NG contract price to increase from from $4.20 to $8.00 mmBTU. In fact, the opposite is true - they can't afford not to. It is necessary to understand the dynamics. 

 

In 2011-2012, India imported about 25% of its NG. This is expected to climb to 40% this year and climb further in 2013-2014 to over 50%. The reason? - demand is growing and supply is dropping. Contributing to the supply drop is a 60% drop in production from the KG-D6 block from 2010 to now as Reliance has shut in 8 of the 22 wells.(Field is 60% Reliance, 30% BP, and 10% Niko) Reliance has been shuting down production because, according to an unidentified spokesman, they need $7.00 mmBTU to break even.

 

At the same time, the increasing NG needs is being met by LNG imports from Qatar at about $15.00 mmBTU - almost double the repricing that Reliance (& Niko) is asking for. To make matters worse, with India's presently terrible current-account deficit, the last thing they need is to pay $15.00 to someone outside their borders for their increasing NG needs when it can be met at home for $8.00 and benefit their economy.

 

For this reason, I think Reliance/Niko has been reassured of getting the new pricing and thus recently commmitted new funds to the area.

 

Although still high risk, I think the share price has come down so much that the risk-reward has now become attractive. As such, I have been accumulating in here. Now if we could only stop hitting dry wells.

 

Greg