Using alt data to monitor illicit oil supply chain activity

Konstantinos Vafeidis, Associate (London)

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We provide an overview of the significant wide-ranging implications of oil and fuel theft, including its negative impact on oil and gas companies, governments, and economic growth. We also share a brief analysis by a supply chain risk intelligence data provider, which showcases how alternative data can be used to identify and analyse the extent of illegal pipeline tapping in a particular region.

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Every year, it is estimated that $133 billion worth of oil and fuel is illegally stolen, adulterated or fraudulently transferred at some point in its supply chain.1 This illicit activity is a global problem with broad repercussions including loss of government revenues and corporate profits, funding of terrorism and organised crime, and environmental degradation.

Due to the wide-ranging implications and magnitude of oil and fuel theft currently taking place around the world, we believe that enhanced visibility into global oil supply chain networks could be beneficial to both commodity investors and those investing in oil and gas equities.

The implications of oil & fuel theft

The implications of oil and fuel theft can be seen at a company-level as well as on both a national and global scale. These include:

  • Government revenue losses – oil supply chain disruptions cost governments billions of dollars annually due to lost tax revenue as well as the abuse of subsidies and a reduced ability to attract private investment. As an example, the EU loses more than $4 billion annually in tax revenue to fuel fraud, while the Philippines loses $750 million annually in tax revenue due to adulterated fuel products entering its supply chain from smuggling.
  • Corporate profit losses – oil and gas companies are burdened with both direct and indirect costs associated with the oil theft. The direct costs of oil theft include the lack of revenue earned on stolen batches of fuel, replacement costs for stolen fuel, repair or replacement fees in the case of equipment damages, and investment in security measures to reduce the risk of future thefts. Additionally, the negative reputational impact faced by oil companies as a result of oil theft could be considered an indirect cost. As an example, Mexico’s state-owned oil company, Pemex, loses more than $1.6 billion annually due to fuel theft.
  • Threat to security – money made through oil and fuel theft reaches criminal organisations and terrorist groups, who therefore benefit from this illegal activity. As a consequence, we are likely to see greater regional, national and global instability. As an example, 40% of the Mexican black market for oil (with an annual value of $1 billion) is controlled by the Zetas drug cartel. Additionally, terrorist groups such as ISIS have been known to make as much as $50 million per month from selling stolen oil.
  • Environmental degradation – illegal processes such as pipeline tapping, bunkering, and ship-to-ship transfers are associated with a higher probability for blown pipelines and fuel spills. These are events that negatively impact clean water supplies, soil fertility, and marine life. The scale of oil pollution in the Niger Delta exemplifies this, with illegal oil refining activity and supply chain disruption by third parties serving as the main sources of pollution in the delta.
  • Higher gasoline prices – ultimately, large-scale oil and fuel theft translates into higher gasoline prices for consumers

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