By Adam Currie — Exclusive to Gas Investing News
“With gas exploration you have to find an elephant field to make it worthwhile,” said Simon Ashby-Rudd, an investment banker at Standard Bank. “They didn't just find one elephant - they found a herd.”Despite proven reserves, industry professionals feel that it is the potential the area holds that is drawing in the majors. According to UK explorer Afren plc (LSE: AFR), fewer than 500 wells have been drilled in East Africa so far, compared with some 20,000 in the north and nearly 15,000 in the west of the continent. Future demand Analysts at Bernstein Research have suggested that underpinning the current appeal for East African deposits is the increasing demand for LNG in the Asia-Pacific region, which it forecasts is growing at 20 percent year-on-year. The firm also stated that demand for LNG will nearly double over the next decade. Further, despite the dwindling market price, LNG's fortunes are being driven by three major factors: the Fukushima disaster, which has encouraged Japan to switch from nuclear to gas, a long-term increase in European demand as North Sea supplies decline, and the emergence of buyers in China, India, the Middle East, and Latin America. Frank Harris, an LNG analyst at Wood Mackenzie commented, “[w]hen you put all that together, we certainly think there's room for significant volumes from Africa.” Despite impressive reserve potential, investors should be aware that East Africa still poses unique challenges, including restricted availability of refining capacity, adequate logistical infrastructure, and transportation. However, with surging interest from notable gas majors coupled with increasing capital investment, it is hoped that some of these challenges might be overcome. The mood across the sector can perhaps best be summed up by a quote in the Financial Times in early 2011 that noted, "East Africa used to be regarded as an oil industry backwater, a poorer relative to the continent's resource-rich north and west. That's changed over the past 12 months as majors and independents invest hundreds of millions of dollars in exploration and compete to snap up licenses on the continent's last hydrocarbon frontier."