The Chairman of AA Holdings Limited, Mr Austin Avuru, is an eminent geologist who has earned immense experience in oilfield operations, high level executive management, high-risk high-return investments, industry leadership, policy advocacy and investment advisory. Mr Avuru is the founding Managing Director of Platform Petroleum, founding Managing Director of Seplat Energy Plc, lead investor in Pillar Oil, and his AA Holdings currently provides technical and funding partnership to upstarts seeking to navigate the complex terrain of energy business.

Having made enormous contributions in Nigeria’s policy debates and in the review of laws governing the industry, Mr Avuru earns a position among the nation’s eminent industry technocrats sitting on the board of the Nigerian National Petroleum Company (NNPC) Limited.

Mr Avuru is an eminent Fellow of the National Association of Petroleum Explorationists (NAPE) and Society of Petroleum Engineers (SPE). He also holds membership of Institute of Directors (IOD). He commands the respect and audience of peer industry leaders.

In this chat with SOPURUCHI ONWUKA, Mr Avuru analyzes how the prevailing reforms in the Nigerian petroleum industry are transitioning the country from cash oriented commodity exporter to Africa’s hub for integrated energy solutions. He dismisses the concerns over the impact of funding freeze and climate action on the industry, stressing also that energy transition has long been in the agenda of the industry.

We present you his exceptional views on the prevailing transformation in the energy industry in this interview excerpt.

It appears that the world is moving forward from fossil fuel, so how long do we cling on oil revenue to meet our development needs?

My first question to you is where is the hard evidence that the world is moving away from oil and gas?

There is this IEA report that says two-thirds or $2.2 trillion of about $3.3 trillion of the global energy investments are in renewable energy.

So let me tell you what cannot change. The 8.0 billion human beings on earth require a certain quantum of energy to survive and run the industrial machines that runs the world. Certain quantum of energy that is incontestable; that energy must be supplied by different sources. So it is an aspiration and I want you to be careful about this: that it is an aspiration to move away from oil and gas but it only remains an aspiration because that of energy must be supplied, otherwise the world does not exist.

So you can tell me that about two-thirds of our investments in energy are now renewable. However, the quantum of energy that are renewable supplies, the difference between that quantum of energy and the quantum of energy that the world needs must be supplied from somewhere; and if that supply has to come from oil and gas, so be it. Which is why in the last ten years we have seen a shift from a behavior making it look like by XYZ oil and gas activities will become criminal activities; it is now a shift to energy security. What are the sources of energy supply? And oil and gas will continue to be a contributor to energy supply.

Now will other sources of energy play a part? Of course yes. So, renewable is going from a point of near zero in terms of percentage of its contribution to the worlds energy basket .So, it will probably grow from 40% by 2050 or 60%by 2050 but the remainder must be supplied by somebody. And I always want this to be understood in the right context. And this is not about what we are asking for; it is about how it is. If the quantum of energy the world needs is x and renewable supply is y; the difference between x and y must be supplied by oil and gas. It is as simple as that

Now the second leg of the question is “how sustainable is it?

Now bring that back home to Africa; and it is in two parts. One is that oil and gas remains a resource that has value. It is imperative on us to extract the full vale from that resource before we move away from it; and take the value to fund our moving away. Because in moving away from oil and gas to renewable, there’s a cost top it as you said; the amount of money the others are spending.

So we need to first extract the full value of oil and gas and use the revenue from oil and gas to fund our transition from oil and gas.

Second, Africa has now found out what we didn’t pay attention to for the past 60 years: that a country can only make progress when it has energy security. So we were happy for multinationals in the past 60 years to come in here and take crude oil to feed their refineries and energy needs abroad, take gas liquefied in form of LNG to feed their demands in other places, give us the revenue and we were just too happy to run a rental of industry. You can see the shift that has happened just for the last 10 years and it is going to continue. If we are lucky even just as a country in the next three years our refining capacity will be twice our need. That is how it should have been for the past 60 years. Yes, we are happy to deliver LNG Europe and earn money, but we would be happier to deliver gas into the domestic market to fuel our industrialization.

So I’m saying that in oil and gas, there are two sides to it for us. One is that we must extract the full value from that resource. But even more importantly, we must use that resource as an enabler for our development and not just a rental revenue earner. Those are the two elements that Africa must look at. And I can tell you that Africa is looking at it.

So while the banks are saying that they would not lend to oil and gas, Africa is setting up “Africa Energy Bank.” By the time it is fully capitalized, the money we didn’t get from Europe will be gotten from there because we must continue to extract the full value from our oil and gas.

The two critical units of infrastructure which are which is OB3 and AKK pipelines that are supposed to give commercial fillip to gas  investments do not appear to be moving as fast the private investments in gas developments.  How long do you think it will take to break even from the kind of gas investments that we see people sinking money into?

Right now I’m much more hopeful than I would have been. You saw in the news that AKK has leaped. So one critical element of that infrastructure development has been rivercrossing. So OB3 has been held up because it has not been able to cross River Niger. AKK also has to cross river Niger at their upper end to move from the Ajaokuta and cross into Kaduna and Kano. You heard in the news that they’ve done that crossing, and that is 1.26 kilometers of river crossing by the AKK.

So AKK hopefully, at least up to Kaduna, should be able to deliver gas by the end of the year. And if they push that further in one more year, and it is able to push gas into Kano, that is fundamental. And then if they come back and cross the river Niger so that eastern part joins to the western part in the OB3. And as you said, very rightly, once you have AKK up to Kano and OB3 connected, that is a huge infrastructure backbone that can deliver 3Bcf of gas across Nigeria. And that is when you will start seeing the full impact. I’m much more hopeful than I was a year ago.

We are beginning to see the determination to do things fast since the new government came into place. We have lots of executive orders that actually trying to give the expression of intent to existing laws. A lot of players still wonder how to plug into all these executive orders?

My interpretation of the executive orders so far is that they are all targeted at removing bottlenecks that have been seen in the implementation of existing laws. Each one of them is supposed to ease inflow of investment capital. That is my interpretation. Whether it in reducing the approval timeframe, improving the utilization of deep offshore gas or the recent one on tax incentive; they are programmed to provide incentives for being efficient. So when you look at all the executive orders they are targeted at attracting capitals not just from foreigners but also from within and promoting efficiency. So the two main targets of the executive orders are attracting capital and improving efficiency.

Whether it in reducing approval time frames, it is improving efficiency. Whether it is this one that is directly targeted at rewarding you financially, it is improving efficiency. Whether it is the one that has removed all the ambiguity about deep offshore gas, it is promoting efficiency.

You can now see that it is about giving clarity, bringing in capital and being efficient. They are all well thought out and you have to praise those who have sat down to think about them.

So, we’ll go down to downstream because everything about energy security has to do with in-country utilization. I came here by BRT and that is what we were expecting to happen for a very long time, and if we have metros and tunnels running around cities then people will drive less. But that has not happened and we now have deregulations that have shut up the cost by transportation and that have also triggered inflation in the country.  Now you said something about domestic refining which is going to exceed our internal demand very soon but how do all these things like policy, implementation and investment deliver dividends to people like me?

Chairman of AA Holdings Limited, Mr Austin Avuru

We have always lived in the false narrative that all you need to do you reduce cost and make transportation cheap is to subsidize petrol. People don’t remember that in the past 15 years kerosene, LPG and diesels have market driven prices. The poor people use either LPG or kerosene at home. Their transportation is either by Lorries or molues which use diesel and not petrol. So, this whole narrative about the poor man and the common man; if there’s anybody that has been subsidized all along it is not the common man.

And what is this subsidy? We are talking about 4 billion dollars a year financial hold that I cannot even explain. So, no matter how you look at it, we should be chewing our nails that it took us so long to remove subsidy rather than. It is not something to be discussed. It should have been removed 15 years ago. So let’s not go there. It was always a scam and that is a major scam that has now been arrested.

Now what do you need to ease the burden on the poor people? I am saying that it is not about the price of petrol but about the infrastructure that you’re mentioning. If the two rail lines that Lagos is developing (and it develops a third one heading towards Ekpe) are actually looking at electric trains that run fast; and if 80% of ordinary people going to work in Lagos are actually using those rail lines; nobody will be talking about petrol. People may say what they like. If you go at state level how many civil servants drive today? If your capital is in Benin or Owerri or whatever, how many CMG powered buses will be required for 80% for civil servants not to drive to work? It is not too much. If 70% of the staff goes to work daily with CMG powered staff buses, they won’t be talking about petrol. That’s what the governors should be addressing and not to be talking about petrol.

So, we should concentrate on investing in the infrastructure that will make living easier for the ordinary person instead of playing the escapist argument of “Oh, because you removed subsidy, transport has gone up and we can’t go to work.” We are deceiving ourselves! We should concentrate on the work we need to do so that people are not even talking about driving to work or talking about petrol; and they are not even difficult.

Policies that aim to cut internal demand for liquid transportation fuels are activating at a time investors like Dangote, Waltersmith, Aradel, HSI and others are laying out huge capital for local refining. Do you think we are building refining capacity for a market that is diminishing?

Investments in refining should aim at the whole African market. Dangote is not only looking at Nigeria. The company’s overall plan is to supply only 30%of its product into Nigeria, the rest will be exported. Dangote is going to create market across Africa for its product. And that is what we should be aiming at.

People don’t remember the cement armada. People were probably too young, during Gowon’s regime when we had ships here loaded with cement that were waiting in the port for months because there was no space to offload them. Some caked in the ship there! That’s how much cement we were importing, and today were exporting cement. It’s going to be the same thing with fertilizes. We are exporting fertilizers. Those are the stories we should be hearing. We should be exporting PMS, we should be exporting diesel. Those are the stories we should be hearing, not just come and take crude oil and be importing products, or come and take limestone and go, and then we import cement. No!

Ok sir. Let us look at global competition for exploration investments. The narrowing window for global investment capital appears to have sparked a race among African countries to attract exploration investments. How would that impact Nigeria’s reserves and production growth ambition; given our vast open and unexplored oil blocks?

Yes, that is where we dropped the ball in the past 15 years of industry regulation. But I think they are picking up now. If you see administration of licenses now with the NUPRC, you will notice they are emphasizing activity. Without activity you will lose them. Everybody, is it marginal field or the asset you have, whatever asset you have, everybody is now on his or her toes. We have to work the asset or be ready to lose them. So, it is a regulatory thing and that is picking up.

Having said that, don’t be deceived about this business of saying there would be no money to fund fossil fuel. In the past 60 years all the funding for fossil fuel in Nigeria has been done by money generated from the activity of fossil fuel. Don’t be deceived by the narrative that money was coming from all over the world to come and fund fossil fuel in Nigeria.

Those days how many times did you hear that Shell went to borrow moneyto drill wells? They run their capital expenditure from revenue they received from the production they have here. Don’t get deceived about the “Oh funding is being moved away from fossil fuel”. If you’re a newcomer or you are doing acquisition or you are doing massive expansion project, yes, that is when you need to borrow. But routine activity in the oil and gas is funded by the revenue from that same business. You understand what I’m saying?

Say you are running an LNG plant and you want to expand it rapidly; yes, you can borrow to do so. But after that, you will pay. And then, you are running the place with the revenue you are getting from there. That is the way it works. So, when everybody is threatening – “oh there will be no money to fund fossil fuels”- don’t be deceived. The money tofund fossil fuel activities comes from the revenue of the fossil fuel. The industry funds itself.

In the few exploration rounds we had in recent times, there is a pattern that is beginning to throw up rookie companies that surprisingly outperform some well established bidders. Do you think we are moving forward or do you think that we are ignoring the experience that currently carries the industry?

I won’t comment on that.

Now we determined to move on with hydrocarbon whether rain or shine but it appears that key segments of the market, including Chinan and India, are leading investments in renewable energy. If you remove these two countries the market shrinks. Do you think energy transition will leave large reserves stranded in Africa?

Those two countries make up 2.5 billion of 8 billion global population and with the economic growing at substantially over 5%, can you imagine what would have happened if actual supply of crude oil started declining on its own naturally, because the reserves are declining? If supply started declining and demand from those two countries are going up with the same way their GDP growth is, nightmare!

Even without the campaign for fossil fuel, they will have to invest on alternative to fossil fuel anyways, because at some point someday the world must transit from fossil fuel.

Let me say here that technology has managed to elongate the life of fossil fuel. Remember that we thought by 2010 the natural decline in supply would start coming in. It is technology that brought in shale oil. It is technology that improved recovery factor from 35% TO 60%; which is why we are still finding oil till today. Otherwise in the technology of 1970/1980, the oil would have been getting finished by now. So, it is actually technology that has elongated it. But it will come it will soon come to a point where it will plateau and start declining.

So, you have to start planning 30 years ahead for the supplement to when these things start. So forget the campaign for the environmental anything. Even from the human survival point of view, you have to start planning for the next 20 to 30 years.

What is the supplement that will be added to fossil fuel to ensure that this quantum of energy that the world needs is available. So, again unlike us, the people that need to think about it have been thinking about it. So, this whole thing about renewable is not just about environmental, it still about energy security. If you don’t do it now, and in 30 years if all of us start sitting down till fossil fuel start drying up, that is Armageddon!

So the point in making is, if you go and plot the graph, you are going to be seeing a decline in demand for fossil fuel and increase in demand and supply of renewable. But also I am saying you are just filling a gap that would not have been created by demand at stripping demand for fossil fuel. it is that demand you are actually filling up with renewable you are talking about. It is not as if the renewables is creating a surplus of fossil fuel that nobody is demanding. And you can see it. Even with renewable going from 0 to 50%, it hasn’t had a major dent on fossil fuel because it’s just filling a gap that the ordinary normal supply demand would have created.

Let me remove politics from it. Between 2013 and last year, it appears there was no direction. Let me have your final thoughts on the overall transformation that we are witnessing in the full energy value loop; from electricity to gas to oil, both upstream and downstream, since the new government came into power?

You’ve said it and there’s nothing else to say. I believe there is a sense of direction now. So, let us be hopeful.