Downstream Fuel Manipulation: Protecting Your Brand

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By Chad Crouch, Vice President, Authentix.

Fuel manipulation can have a major impact on your revenue and brand reputation (and you might not even know it’s occurring).

Fuel integrity is a key component of brand protection for oil and gas companies distributing fuel to its consumers. Unfortunately, fuel manipulation is a widespread problem that can severely undermine your brand. How big is the fuel manipulation problem? Ernst and Young estimates that stolen, adulterated and defrauded fuel contributes to $133 billion of losses each year.

Fuel manipulation can be notoriously difficult to detect in the supply chain, but when discovered, the magnitude of the problem can be enormous. In a U.S. court case, for example, a petroleum wholesaler was found guilty of diluting medium and premium grades of gasoline with regular unleaded fuel. The company also represented and sold non-branded, low-grade fuels as branded fuels. Executives at the wholesaler were found criminally guilty and the firm was fined 30 million USD.

Sometimes fuel manipulation is a criminal act, sometimes it’s accidental. Improper dosing or blending of additives into fuels at terminal and retail sites can be caused by equipment failure, human error, or negligence. When that happens, oil companies lose revenue and suffer brand erosion.

Do you feel confident that your branded fuel that leaves the terminal is the same quality as what reaches the retail site and is ultimately sold to consumers? Without the right tools and technology to detect manipulation, you can’t really be sure.

Brand degradation occurs when customers unknowingly purchase adulterated fuels that result in poor engine performance or mechanical problems with their vehicles or other equipment. This will often trigger complaints (directly or on social media) and can result in negative coverage in the news media. Any type of fuel manipulation, irrespective of whether it occurred knowingly or unknowingly, is an exposure that can result in consumer mistrust of your products and cause irreparable damage to your brand.

Environmental damage can be caused by fuels that have been under-additized, leading to greater vehicle emissions, and consequently, more air pollution due to the mixing of waste products or non-petroleum products with your branded fuel.

Damage fuel claims can be devastating for oil and gas companies. If the damage claim stems from a single station operator, damage to the brand can be quickly localized. However, if the source of the problem is broader in scope (i.e., a large retail chain, a route operator, or fuel distribution terminal), the effects of complaints and damage claims can quickly gain momentum, harming the brand’s reputation and running up significant operating costs.

You must defend your downstream supply chain.
The supply chain for an oil and gas company is becoming increasingly complex. The more complex, decentralized and variable the supply chain, the greater the risk of manipulation. When fuel enters your supply chain, it moves through fuel terminals to wholesalers and retailers that may include franchisees, oil marketing companies, sub-distributors, carriers, open dealers, and independent store owners. Fuel integrity can be compromised at any “link” in this complex supply and distribution chain.

The disparity in price between a differentiated or branded fuel and a lower-grade or non-branded fuel creates an enticing arbitrage opportunity that can result in fraud and illicit gain. For example, unethical operators can illegally dilute a high-price and high-value product with low-cost and lower-grade fuel and pocket the difference. Diluting premium fuels with regular fuels of the same brand can place an additional 10% of income in a perpetrator’s wallet, more if the diluent is an unbranded fuel. If the diluent is not fuel but is instead water or a waste product (i.e., used motor oil), the return could be as much as 100 percent.

You can be sure of fuel integrity with an advanced fuel authentication solution.
An effective fuel authentication solution illuminates the supply chain to identify the opportunistic, fraudulent or accidental manipulation of differentiated and branded fuels. This can be accomplished by incorporating covert chemical markers into refined petroleum products and utilizing analyzers to validate the authenticity.

Fuel marking is an extremely effective solution to enable your organization to defend against manipulation and achieve revenue targets for your branded and differentiated fuels. By understanding where you have been compromised in the supply chain, your organization can then take corrective action to prevent future manipulation and ensure your fuel’s authenticity in the long term.

Another benefit of a well-designed fuel authentication solution is its powerful deterrent effect. When fuel retailers know their stations are being randomly audited, and they know the range of penalties that other operators have incurred for diluting fuel, they tend to be much more resistant to temptation and the level of contract compliance increases dramatically. After all, no one wants to be the next case study for the effectiveness of the fuel authentication solution.

You can be your company’s brand protector.
If your company was a football/soccer team, you’d be the goalkeeper. Your team depends on you to protect what matters most. Every day you are protecting your downstream supply chain from unpredictable threats that range from terminal issues to intentional acts of fuel manipulation. If even one ball gets past you into the net, it can have devastating consequences—lost revenue, harm to the environment, and damage to your brand reputation.

Your customers trust you to deliver a quality product, and it is your job to deliver on that promise. With the right fuel authentication solution, you can confidently assure the integrity of your supply chain—from the terminal to the pump.

Chad Crouch is Vice President at Authentix, the authority in authentication solutions. Authentix helps you thrive in supply and distribution chain complexity by providing advanced authentication solutions for governments, central banks and commercial products. These solutions ensure that local economies grow, banknote security remains intact, and commercial products have robust market opportunities. Our partnership approach and proven sector expertise inspires proactive innovation, helping you mitigate risks to promote revenue growth and gain competitive advantage.

Download Blog PDF Here

Case Study: Coral Gas Combats Illicit LPG Dilution

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Authentix developed a fuel marking system that is the first of its kind to be adopted by an EU-member state.

Liquefied petroleum gas (LPG) is a Greek success story. In recent years, Greek consumers have increasingly switched to LPG, using it both as an automotive fuel and a heating fuel, due to its lower price compared to gasoline or oil. In fact, official Greek sales of LPG reached 215,000 metric tons last year, up from just 4,200 tons in 2009.

Coral Gas has played a major part in that success. Formerly known as Shell Gas S.A., Coral Gas S.A. operates as a subsidiary of Motor Oil Hellas Corinth Refineries SA. Through its four plants in Athens, Thessaloniki, Ioannina and Crete, Coral Gas has helped make LPG a big part of everyday life in Greece.

The Attack

With success came a significant problem. Coral Gas was experiencing product quality problems due to dilution. It appeared that LPG that did not originate from the fuel retailer’s depots was being diluted and sold through its network of retail stations. This illicit activity had a negative effect on the Coral Gas brand, as consumers were no longer able to depend on the integrity of the LPG fuel they were purchasing. Manipulated fuel like this can lead to premature engine wear and tear, leading to costly repairs. Of course, it also leads to erosion of consumer trust in the brand creating significant revenue loss.

Defense

To defeat the LPG dilution problem, Coral Gas has introduced a powerful new weapon—a molecular marker, that is added to its automotive LPG products. This advanced authentication solution was developed by Authentix, the sole global provider of quantitative LPG marking technology.

To deter illicit fuel manipulation and protect Coral Gas’ brand integrity, Authentix’s team of subject matter experts in technology, program design and fuel authentication program management, collaborated with Coral Gas to support their business goals. Authentix developed a proactive, innovative solution that utilizes chemical markers built to withstand adulteration and illicit filtering methods. Authentix also provides in-house services and support (advisory, design, implementation and operations).

In the advisory phase, vulnerabilities in Coral Gas’s supply chain were identified. Using this information, the Authentix team provided a design template using its covert markers and analyzers to customize the program to Coral Gas’ needs.

The Pilot Program

Launched at one retail location in 2017, the pilot phase included the addition of a proprietary Authentix covert marker to Coral Gas’ automotive LPG. Using patented technology validated in both the field and laboratory, the Authentix team added quantitative fluorescent markers to legitimate fuel and measured for dilution. These markers are detected using special, intrinsically-safe readers.

The marker creates a unique fingerprint to identify legitimate fuel at retail sites, and is only visible with a highly-sensitive field detection device. Quantitative measurements of the marked LPG were taken using an Authentix LPX 1000 device reader. The device uses a monochromator principle to detect the presence of the optical marker in the fuel.

The Full Roll-Out

On October 8, 2018, Coral Gas began using LPG markers to protect their branded automotive LPG at approximately 350 retail sites, 100 of which are company owned/operated, and 250 that are dealer owned/operated.

As part of the program, Coral Gas is performing unannounced checks at service stations to ensure the quality and quantity of LPG. In addition, a state-of-the-art electronic system ensures the quality of the gas, accuracy of the mass meter controls, and that the program is being operated correctly by each Coral Gas distributor.

The program is designed to further advance the already-stringent quality controls that Coral Gas has in place. “The application of this molecular tracer system is part of the ongoing commitment to our customers to deliver quality fuels with excellent specifications,” said Coral Gas CEO Panagiotis Charitopoulos. “At Coral Gas, there are no compromises on quality issues and very high standards are maintained throughout our fuel management process.”

This is the first LPG marking system implemented in Europe. Working with Authentix, Coral Gas has implemented an effective solution to ensure that, every day, Coral Gas customers receive the precise, high-quality LPG that their brand promises.

Blockchain in the Oil Industry: Insights shared at the UEIL Annual Congress

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By Dr. Phil Forshee, Senior Principal Scientist, Authentix.

Speaking at the UEIL Annual Congress in Budapest, Hungary on October 25, 2018, I was honored to share my insights in “Building Trust in the Supply Chain – An Introduction to Blockchain.”

Since its introduction in 2008, blockchain has taken the world by storm as the underlying technology for Bitcoin and the exploding cryptocurrency industry. At its core, blockchain is an information technology innovation that will likely change how many systems of record are designed and implemented. By offering immutability and transparency, blockchain can offer significant benefits to enhancing trust across complex business networks.

An application for which blockchain is particularly well suited is supply chain management. Blockchain provides two supply chain elements that are critically important – reliability and integrity. Everyone on the blockchain can see the complete chain of ownership for an asset because all the entities on the chain have the same version of the ledger, providing consensus. Once a record is on the chain it cannot be erased or modified, thereby adding further transparency to the supply chain.

Securing the supply chains of bulk products such as lubricants and refined fuels has its own unique challenges, as bulk products do not lend themselves to using conventional packaging-based security technologies such as 2D barcodes or NFC chips. However, the creation of spectral fingerprints for products (based on molecular spectroscopy) or results from chemical marker analysis can be uploaded to the ledger along with other transactional elements to authenticate the physical product throughout the supply chain.

While blockchain technology by itself does little to address the physical authentication of products, it does create demand for secure technologies to enable authentic physical to digital transformation of a transaction. Verifying the physical end of transactions going into a ledger provides the trusted inputs required to exploit the promise blockchains can provide to a multi-stakeholder supply chain.

Republic of Zambia seeing significant return on investment after beginning to enforce its fuel authentication program.

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In recent years, the government of Zambia became aware they had a problem with illegal fuel dumping and/or adulteration. In fact, Zambia’s Energy Regulation Board (ERB) estimated that these activities were depriving the government of 81 million dollars USD per year in fuel tax revenue. To determine what fuel products were being manipulated, and where in the country the illicit activities were most rampant, the ERB implemented an ongoing fuel authentication program.

In February of this year, fuel from all government depots and certain national-oil-company depots intended for the Zambian domestic market were marked with a small quantity of a biochemical substance that acts as an identifiable “fingerprint” for the fuel. With more than six months of significant data from this authentication program, the ERB is initiating enforcement actions.

Baseline sampling and testing of Zambia’s fuel supply chain have answered the “what and where” questions about fuel manipulation that had previously eluded the ERB. They reveal that 1) there is a high incidence of tax avoidance through dilution of domestic fuel with unmarked products and/or kerosene; and 2) fuel manipulation is most prevalent along the country’s North/South transit corridor.

Based on these findings, the ERB has undertaken targeted enforcement actions. But they are also conducting continuous, impromptu sampling and testing of fuel at all filling stations, bulk fuel storage facilities, fuel tankers, and retail facilities for domestic consumption. The consumers of this fuel include mining and allied industries, construction, transport and logistics, general commerce, and the agricultural sector.

In addition, those who are suspected of conducting illegal fuel manipulation activities have been warned that the ERB working with Zambia Revenue Authority (ZRA), Zambia Environmental Management Agency (ZEMA), Drug Enforcement Commission (DEC), and the Zambia Police (ZP) are dealing firmly with fuel manipulators.

If an entity is found in possession of, selling, distributing, and/or transporting non-conforming petroleum products, ERB enforcement actions and penalties include license suspension or revocation, and the imposition of considerable fines and/or imprisonment (once convicted) for a period not exceeding two years.

The ERB and other cooperating government agencies are all enthusiastically undertaking appropriate enforcement actions to end fuel manipulation in Zambia. The ERB is optimistic that the effectiveness of the fuel authentication program will help ensure that fuel quality is guaranteed, and that maximum tax revenue can be realized from fuel sales in Zambia.

The impressive progress of the Zambian fuel authentication program is yet another example that fuel authentication programs such as theirs demonstrate a return on investment that is well-documented and compelling.

In addition, they provide other associated benefits—not the least of which is that they can help
governments ensure authentic products are sold in-country to benefit law abiding citizens – not criminals. Fuel marking solutions enable governments to collect more excise taxes without raising taxes for the benefit of citizens and legitimate industries

Two Trillion Liters of Insight- Preventing Illicit Fuel Trade

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Illicit fuel trade is a major, global challenge within the oil and gas industry, the consequences of these unlawful actions being pervasive, from environmental damage to depriving governments of customs and tax revenues and actively supporting illegal activities.

The first Oil & Fuel Theft Summit was held in Geneva in April 2018 which helped to create discourse between high-level stakeholders within the hydrocarbons industry on how we can fight this revenue depriving delinquency. Authentix was a corporate sponsor of the event, where our team provided understandings on the issue, encouraging collaboration and drawing attention to this subject, we sought to deepen awareness.

Authentix insights into combatting fuel trade spans our experience over the last 20 years protecting more than two trillion liters of product in that time.

As the authority in authentication since 1998, Authentix’s extensive, proven experience in public and private sector authentication solutions ensures the programs implemented for our customers are comprehensive, technologically advanced and professionally executed.

We believe a system of fair and open commerce is an agent for good in the world, when that system is compromised civil society is weakened. We feel our company’s beliefs and mission help to ultimately combat illicit fuel trade.

Illicit operators go to where the money can be made. The mechanics of fuel fraud allows for this since price arbitrage drives the opportunity for offenders. In Mexico for example, taking stolen product and selling it approximates to USD4B industry per annum. In Ireland, criminals take subsidized diesel remove dye markers and transport it across neighboring borders to be sold as fully taxed diesel and pocket the price difference. Selling unbranded fuel as branded fuel, dilution or adulteration the possibilities are abundant for criminals to profit. The problem is huge, and the typical illicit trade rate which we have seen in serving our customers is usually about 30%.

In the European Union lubricating oils can be moved without being monitored by Excise Movement and Control System because they are not subject to excise tax in the EU and only a few States apply national taxation on these products. Fraudsters manufacture and transport lubricating oil throughout the EU and then introduce it in the mainstream network and sell it as automotive diesel fuel with the consequential evasion of excise duties.

Technology alone is not the solution. Understanding the job to be done, the desired outcomes to be achieved and how we apply technology to realize those outcomes is the way Authentix helps customers be the heroes.

Customers want to understand where their problems are and what they need to do to solve them.

Fuel markers and field analyzers are a part of the solution but translating data into actionable insights to combat illicit trade is key. Our Authentix Information System (AXIS) is an integrated set of software applications that collects data from testing performed on fuel samples, combined with fuel volume and pricing and other information which allows for intelligent analysis to be done which deliver those actionable insights.

Authentix Services and Support is available to our customers throughout the program and includes advisory services, design services, implementation services, and operational support.

Subsidized fuel looks exactly like full priced fuel, branded fuel looks exactly like unbranded fuel. So, marking fuels is important, since it enables the efficient determination of the identity of fuel products. Fuel marking as a tool within a program is cost effective and makes sense. The proper application of this technology lends to the idea of – its less of what you have but more of what you know from it.

Authentix’s roots are as an analytical chemistry company. Our core capability in developing robust molecular markers, purpose built to withstand adulteration and illicit filtering methods, has earned us the reputation as the premier covert marker developer.

Understanding the desired outcome of a program is significant to our goal at Authentix whether it be protection of a subsidized product, ensuring quality throughout the supply chain, trying to increase the collection of excise taxes or trying to stop smuggling, we focus on devising solutions that address our customer’s needs.

It may sound complicated and customers may seem overwhelmed with available technology solutions on the market, various types of programs being offered but our advice at Authentix is – Do Something!

There are simple approaches to begin deterring illicit activity. Making the issue more visible and having offenders understand the consequences involved in being complicit in this behavior is a preventive move and minimizes the problem. This menace is not going away till we do something.

Technology Progression in Fuel Marking

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Stop Fuel Smuggling Series

By: Jeff Conroy, Chief Scientist, Authentix

Branded fuel suppliers began to use colorants in the 1950’s as a means to indicate fuel type, grade, or brand in the downstream petroleum industry, and this approach continues with wide-spread acceptance today. As fuel taxes and subsidies came into use around the globe, it was an easy extension to use this approach as an indication of taxes paid (or exempted).

The use of overt and covert dyes and field kits and devices to read them continue to be a backbone of many fuel marking programs. They are relatively inexpensive and allow non-technical personnel such as police and revenue inspectors to have some level of rapid field indication of illicit activity. This enforcement work is usually backed up by laboratory testing to confirm the identity and amount of marker present in the fuels in support of prosecution.

While visual colorants are low cost and easily implemented, as tax markers they have several disadvantages, including their ease of replication and removal from the fuels. In addition, because many fuels have some inherent color, visual determination is made difficult for many people, especially those with some degree of color misperception.

Making Tests More Reliable

Markers evolved to include more proprietary compounds, designed and developed for fuel marking. To overcome the shortcomings of a human visual assessment, machine readable features that are easy to use and give unambiguous results were developed. The application of portable devices for analysis of fuel markers also enabled a more rigorous quantitative analysis, making dilution detection in the field more reliable. Systems which utilize fluorescence (Forshee 2012) or absorbance (Banavali 2007) of invisible markers have been described. These devices are small, simple to use, and require very little maintenance.  Further enhancements of these types of devices have led to very sophisticated fuel analyzers, capable of analyzing multiple markers, in various fuel matrices, with little to no operator intervention to enable accurate measurement. Coupled with modern smart devices such as phones and tablets, these analyzers can give real-time GPS verified results and integrate with applications to manage workflows and data capture.

The Need for Quantitative Results

Because fuel integrity programs are often instituted to meet a wide range of objectives, each implementation is different.  For example, a country may choose to deploy a “national marker” program, indicating that all taxes have been fully paid on fuels.  In essence, the marker serves as a “chemical tax stamp” for all taxed fuels.  In this type of deployment, inspectors will be looking for the dilution of the fully taxed fuel due to the addition of a lower-taxed or diverted petroleum products, which do not contain a marker.  In this case, accuracy of a quantitative result is paramount.  To maintain program integrity, it is essential that the security of the marker is maintained with regular audits to maintain program integrity.

Another typical application is where a country needs to protect the use of subsidized petroleum products that can be used outside of their intended subsidized market.  In this case, the fuels would need to be treated with laundering resistant markers to prevent criminals from potentially removing the markers to prevent detection.  The simple presence of the marker in a non-subsidized fuel application could be enough to indicate illicit activity, reducing the need for quantitative results on the test.

Field versus Central Laboratory Testing

Some have advocated a “forensic test” in the field approach.  Such an approach requires “portable” instruments that require support (e.g. power, gases, and environmental control) from the vehicle in which they are mounted.  This approach can limit the number of testing systems deployed due to cost of the platform that includes a vehicle and the associated support.  In addition, the idea of deploying a forensic test into the field as opposed to performing the test under laboratory controlled conditions is yet to be defended in courts, where the approach may find considerable challenges.

In fact, two of the largest marker programs, the EU’s Euromarker and the United States Internal Revenue Service’s red dye marker have published reference methods (Linsinger, et al. 2004) (ASTM International 2009) and collection protocols required to support enforcement and prosecution.  The proper collection, chain of custody, and analysis of samples for support of litigation is well documented for many forensic activities such as drug enforcement, crime scene investigation, and environmental monitoring.  Following similar procedures for fuel sampling allows authorities to continue to deploy relatively cost effective field enforcement tests like covert machine readable features, while providing forensic evidence with a proven laboratory test protocol.

In the laboratory, GC-MS is used for analysis of fuel markers for over twenty years to provide unequivocal forensic level support of fuel marking program enforcement. Markers designed to exploit GC-MS offer definitive forensic evidence of the origin and condition of a fuel.  The markers are covert and robust, resistant to laundering agents, and compliant with the most stringent environmental regulations.  The analysis is very accurate, with limits of detection in the low parts per billion (or lower in some fuels) and very good accuracy and precision, as good as +/- 1% on the analytical method itself.

The Right Solution for the Right Outcome

Fuel marking technologies have evolved from the use of colorants and dyes to covert markers and machine readable features.  Field portable analyzers have greatly increased the accuracy of enforcement, and reduced the burden on personnel by making test results definitive and quantitative.  Markers have become more robust and resistant to laundering and meet the most stringent environmental, health and safety regulations.  Finally, the development of powerful laboratory controlled forensic molecular marker sets based on GC and GC-MS have strengthened the legal standing of these programs, enabling government agencies to enforce laws that protect subsidies and taxes on petroleum products.

Click here to learn more about how Authentix’s Vigilant® offering is helping governments prevent fuel fraud. You can also learn more about Assure™, our brand protection fuel marking program for oil marketing companies.

 

References:

ASTM International. 2009. “Standard Test Method for Determination of Solvent Red 164 Dye Concentration in Diesel Fuels.” ASTM Standard D6258 . West Conshohocken, PA: ASTM International.

Banavali, Rajiv M. & Ho, Kim Sang. 2007. Pyrazinoporphyrazines as markers for liquid hydrocarbons. United States. Patent 7,157,611. Published January 2 2007.

Forshee, Philip, & Kottenstette, Peter. 2012. Tagged petroleum products and methods of detecting same. United States Patent 8,129,190. Published March 6 2012.

Linsinger, T., G. Koomen, H. Emteborg, G. Roebben, G. Kramer, and A. and Lamberty. 2004. “Validation of the European Union’s Reference Method for the Determination of Solvent Yellow 124 in Gas Oil and Kerosene.” Energy & Fuels 18: 1851-1854.

Responsible Fuel Supply Chain Management Just Makes $ense

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Illegal Fuel Trade, Supply Chain Integrity and Technology

By: Erwin Dorland, Advisory Program Delivery Manager, Authentix

When addressing the problem of fuel smuggling or fuel fraud, responsible fuel supply chain management isn’t just a simple question of doing the right thing – it makes financial sense.

Responsible management and minimising risks within the fuel supply chain will ensure quality and security of the supply chain.

Financial gain is often the key motive behind supply chain infiltration, as illegal practices can be extremely lucrative1. Often the legal and regulatory framework is weak, the risks are low and the financial gains can be high. As mentioned in a previous BLOG, in many cases, organised crime is involved, which contributes to the growth of this type of fraud.

Most countries have significant problems with lower taxed fuels being sold at higher taxed prices. For example, in Europe, diesel is sold at a lower tax rate for agricultural use, but is illegally used by road users, who are supposed to purchase higher taxed diesel. This type of fraud is preventing governments from collecting the right amount of taxes, which impacts government programs, the well-being of all citizens and the environment in which we live. In my experience, there are four key areas of focus to ignite action against the business of illicit fuel trade.

Visibility2, 3

Visibility refers to the ability to see what is going on within the supply chain. Fundamentally, having access to information will enable managers to make better decisions.

Information technology is at the root of supply chain management. With the advent of the Internet and the Cloud, information exchanges can involve many stakeholders and enables access to critical data 24/7.

Traceability

Traceability is closely related to visibility and refers to the ability to track the fuel’s provenance and maintaining a record of activities of the product flow.

Several tools are available to ensure traceability as fuel moves through the supply chain. The advancements in technology now allow stakeholders to tap into a variety of information sources for a balanced view of supply chain participants and risks. The fuel industry has a number of tools available, such as visible dyes, covert dyes, chemical markers, sealing of tankers, GPS tracking of trucks, dipping of trucks, and wet stock control to track products, to ensure quality and prevent fraud.

Integrity

National governments are increasingly being held accountable for policy actions and therefore the governments’ awareness of and commitment to high principles and business practices is increasing.

The exposure of irresponsible practice in the supply chain can result in severe damage to national governments’ reputation and citizens’ trust. For example, governments not collecting the available taxes and having the appropriate system in place to do so, might have a negative standing with citizens.

Transparency

Transparency refers to national governments’ engagement and communication with external stakeholders. Such engagement is designed to share the national governments’ practices with those that have an interest in the governments’ behaviour, including environmental and social performance. Supply chain issues are becoming more and more visible to citizens and stakeholders. Therefore, developing transparent information systems and processes to communicate sustainable supply chain practices is vital. For example, governments can use social media to inform and educate citizens about their approach to responsibility, by promoting supply chain transparency.

 

Ready for Action

To really support the initiative to stop fuel smuggling and fuel fraud, making the supply chain more resilient to supply chain risk involves attaining a good understanding of the supply chain and conducting analysis of the potential threats and the level of risk4. Technology can be used to verify fuel authenticity and tampering. The resulting information will need to be captured using the appropriate information technology and made visible to the appropriate stakeholders.

Among the considerations of the technologies to be used, must be the ability for the technology to pay for itself. Government and policy makers need to be educated regarding the risks of fuel adulterations and how the legal and regulatory framework need to work hand-in-hand with the introduction of technologies. Awareness needs to be created that no technology will provide absolute supply chain security, as there are always weaknesses to be exploited. The key is to understand the key risks and put tools in place to collect the appropriate information, so those risks can be managed.

Click here to learn more about how Authentix’s Vigilant® offering is helping governments prevent fuel fraud. You can also learn more about Assure™, our brand protection fuel marking program for oil marketing companies.

 

References

  1. Illicit Trade, Supply Chain Integrity, and Technology – www3 … – Illicit Trade, Supply Chain Integrity, and Technology, J Picard and C.A. Alvaranga
  2. https://dupress.deloitte.com/dup-us-en/topics/operations/supply-chain-transparency.html – The path to supply chain transparency, D Linich, University of Tennessee
  3. creating a transparent supply chain best practices – Global Supply ……  – Creating a Transparent Supply Chain – Best Practices, University of Tennessee
  4. Manage your supply chains responsibly – Business in the Community – How to: Manage your supply chains responsibly, Business in the community

The Harmful Implications of Illicit Fuel Trade—the economy, the people, the environment

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Written by: Kevin McKenna, President, Oil & Gas, Authentix
Stop Fuel Fraud Series

People often ask me what I do for a living. When I state that I manage a business that helps detect and deter illicit fuel trade, most of the time the response is a confused look and the question, “What is illicit fuel trade, and is that really a problem?” My quick answer is that illicit fuel trade is likely the biggest problem that you have never heard of. The first step in tackling this menace is to shed light on its existence and the harm it inflicts on society.

For the past couple of weeks, we’ve produced some different blog posts discussing illicit fuel trade, a major worldwide problem stealing billions of dollars from governments, legitimate businesses, and consumers. “Illicit trade” can be the simple case of outright theft, which is very prevalent in Mexico today, where the state oil company, Pemex, says it lost about $1.6B in 2016 from fuel stolen from over 6,800 pipeline taps across the country. Another scheme of illicit trade is made possible by exploiting the differences in price between fuels or other petroleum products because of tax differences, subsidies, different grades, or product types (e.g., adulteration with non-fuel products such as solvents or waste oils).

Why fuel fraud is hard to detect

In both cases of illicit trade, the execution of the crime is simple – take a lower price (or stolen) product and either mix it with a higher priced product or replace it outright – sell the fuel at full price and pocket the difference. Even small differences in product prices can generate massive returns for criminals due to the sheer volume of petroleum products consumed every day. The crime is further enabled by the difficulty in detecting when it is perpetrated.

What does this mean to you?

Most consumers never see the road fuels that they purchase, and even if they did, an illicit product may look the same as legitimate product. If as a consumer, I unwittingly buy adulterated fuel at the premium price, obviously, I don’t get what I paid for; but it can also damage the engine of my car, reduce my fuel economy, and increase air pollution. The government doesn’t collect the taxes it needs, legitimate businesses suffer from unfair competition, and the reputation of oil marketing company brands may be unfairly tarnished.

At Authentix we believe that a system of fair and open commerce serves as a powerful agent for good throughout the world. When this system is compromised by illicit trade, civil society is weakened. The scope and scale of illicit fuel trade is particularly damaging in this regard – diverting money to organized crime and, in some cases, terrorist organizations, while defrauding governments of tax revenue necessary to fund programs in the service of their citizens. In many cases these taxes are a significant portion of the country’s total tax revenue – any shortfall in collection may necessitate higher taxes in other areas, placing an even larger tax burden on the populace.

The only people benefiting are the criminals perpetuating the crime – and it is BIG business. Our experience in several countries is that the illicit trade rate in the fuel supply chain was over 30% – translating into hundreds of millions of dollars each year lost to criminals in each of these countries.

Time to disrupt the business of illicit fuel trade

Fuel Marking Programs (FMPs) are a highly effective means to redistribute illicit gains away from organized crime and savings toward legitimate businesses and Government, while ensuring consumers get the quality products for which they have paid. In weeks to come, we will dive into FMPs and how we have seen FMPs assist governments in enforcement of policies prohibiting illicit fuel trade. Many of these programs deliver a significant return on investment of usually five to 10x the cost of the program.

I hope you recognize the lasting implications illicit fuel trade has on all of us. Usually after an awakening to how people’s everyday lives are affected, the next question is typically, “Why isn’t every government doing an FMP?” My personal opinion, it’s the same reason that most citizens aren’t aware of the problem and the harm it brings to their community – something we at Authentix are working diligently to change.

Click here to learn more about how Authentix’s Vigilant® offering is helping governments prevent fuel fraud. You can also learn more about Assure™, our brand protection fuel marking program for oil marketing companies.

How to Create a Secure, High-Quality Fuel Supply

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Introduction to Stop Fuel Fraud Blog Series

Every country around the globe is dependent on the use of petroleum products to move people and goods around, generate power and generally keep their economies growing. Because of this ubiquity in the economy, most governments have developed fuel taxation systems to fund essential services for the benefit of their citizens and at times, provide subsidies to lower prices for certain essential fuels.

The differential in price between taxed, high-cost fuels and subsidized, low-cost fuels creates an incentive for criminally-minded people to perpetrate fuel fraud. The money generated by this illicit activity has been used to fund drug cartels and other organized crime[1] as well as terrorists[2].

Fuel fraud happens in a variety of ways. One form is smuggling in fuel from a neighboring country where prices are low. A striking example is Guyana, a small country in South America that shares a border with Venezuela, where the price of diesel is subsidized down to US$ 0.01 per liter. Guyana follows the prevailing market price for diesel, selling it at about US$ 0.70 per liter, so the incentive to bring fuel via ship or overland from Venezuela is quite strong.

Fuel fraud also occurs when high-priced, taxed product is diluted with cheaper or low-tax fuel products. An example of this is when diesel fuel intended for use in agriculture or mining carries a no- or low-tax rate and is diverted into the high-tax road diesel fuel supply.

Adulteration is a common type of fuel fraud that occurs when other types of hydrocarbons are introduced in the fuel supply. These are typically low- or no-value inferior products such as solvents or waste oils, which then adulterate the fuels meant for vehicles. These adulterants are both a source of additional air pollutants and can cause malfunctions, component failure and safety problems for engines that combust these compounds.

Fuel fraud is a rampant problem in the world, siphoning off needed tax revenues, harming air quality and damaging vehicle engines. This is the first in a series of articles about the ramifications of fuel fraud and a detailed review of the many ways it can occur. Stay tuned through the end of the series to learn how a well-designed, comprehensive fuel marking program – the introduction of environmentally-safe chemical markers into the fuel supply chain – can pay for itself in recapturing lost tax revenue while providing timely, actionable insights that allow government enforcement personnel to combat illicit fuel trade in their countries.

A secure, high quality fuel supply strengthens confidence in the government, provides a level playing field for the companies that sell and distribute fuel in the country and keeps vital funds out of the hands of the bad guys.

 

By: Gail Moser, Director of Marketing, Authentix

 

[1] https://www.nytimes.com/2017/04/26/world/americas/mexico-fuel-theft-crisis.html?_r=0

[2] https://www.usnews.com/news/the-report/articles/2015/11/23/financing-terror-where-does-the-islamic-state-group-get-its-money

A Product Owner’s Journey to Release the LSX 3000 Field Analyzer

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It was over a year ago now that I was tasked with taking up the role Product Owner for Authentix’s newest analyzer for our Fuel Marking Programs, christened the LSX 3000 Field Analyzer. At the beginning of my involvement in the project, I was looking up quite a steep hill and had some reservations; it was my first time acting as a Product Owner of a project that had been in motion for a few months. What’s more, both the engineering team and software team weren’t working with clear instructions of what exactly they were supposed to build (in product development lingo, they didn’t have all of the “requirements”).

I quickly came to realize that both teams had done a spectacular job of coming very close to meeting the base requirements while developing their separate parts of the project. However, both teams were missing some key information. We in the Product Group knew that when we launch LSX 3000, we didn’t want to just be close, we wanted LSX 3000 to be the fastest, most accurate, and most reliable field analyzer on the market.

In my experience, the best way to tackle a problem is by facing the challenge head on. We started by reviewing the list of requirements by team and identifying the issues that each were facing. Once those missing requirements were identified, we further dissected them into their smallest components. This ensured that each issue was fully understood and could be addressed by the right individuals, and in the right order of precedence. Fast forward a few months, glossing over all of the inevitable growing pains that come with new processes (everybody just loves change!), we finally had a prototype unit that was ready for its first field test!
We looked for the best location for a field test that would ensure that we would really put the prototype LSX 3000 through its paces. After some discussion, one of our partners in Africa agreed to participate in a trial of LSX 3000.

So, after a brief, refreshing 23-hour flight, my colleagues and I stepped onto the tarmac in Accra, Ghana to begin our two-week field trial.
As it turns out, we chose a “perfect” location for the test. Temperatures in the sub-Saharan northern part of the country flirted with 50°C / 122°F (heat stress, check) while in the southern regions of the country, we faced near 100% humidity, if not outright drenching rainfall (humidity/water resistance, check). During this trial, we collected data, more data, just a bit more data, and some invaluable feedback on usability and functionality. At the end of two weeks, I had a great tan and a stack of information that would help our teams refine and improve the already amazingly tough prototype design.

The development process continued throughout the summer and fall, including several more trips abroad to test each new and improved version of the analyzer. Each time we returned, our stack of needed “improvements” grew shorter. The whole team knew we were getting close to a product that reflects customer and market needs, but we made the decision to do one final trial, only this time as observers. This trial tested the premise that a user with minimal training could operate the instrument and address any problem. Users were presented with different situations (uncharged/no power state, no wireless connection, etc.) and asked if they could resolve the situation themselves. The users were able to quickly and easily correct the problems on their own – positively reinforcing our premise and demonstrating that our new analyzer would be user friendly and simple to operate, one of the key requirements.

Additionally, the sampling data was a great resource for Chemometrics team members here in Texas. They used the insight to make changes to the analyzer’s mathematical models and the analytics processes of each successive prototype, making each version better and more accurate. All of the team’s work paid off. With a little over 18 months under our belt, LSX 3000 launched on 22 June 2017, under our Vigilant offering as the fastest, most accurate, and most reliable field analyzer available today.

Click here to learn more about Vigilant. You can also contact Authentix at info@authentix.com.