This post reviews a novel technology which has the potential to transform how movements of crude oil and refined fuels could be monitored across the global supply chain. The technique, which relies upon encrypted nanoparticle tags being introduced into the oil stream at extremely low concentrations, has already been deployed in the food and drink industry to verify the legitimacy of high value products such as high quality wine and olive oil.
While many OilPros may initially dismiss the concept of nano-tags to track global oil movements as over-ambitious or impractical, the challenges are not insurmountable. Probably the greatest barrier to adoption is whether multiple governments and market organizations would ever subscribe to such a system, and if so which agency(ies) would take responsibility.
While the dismantling of ISIS’ oil funding has focused attention on tracking oil movements from Syria and Iraq – which oil tagging could assist with – there could be many other potential benefits if a low cost global oil tagging and associated tracking technology were to be introduced to the oil industry. These might include improved management of refinery feedstock, enhanced transaction certainty for banks and insurers underwriting cargo movements, the ability to forensically prove sources of oil spills at sea, and a new level of accountability around gasoline’s provenance which may be of interest to discerning consumers.
Current Oil Trading and Tracking Practices
Crude oil is defined by its physical properties such as specific gravity, sulfur content, salt content, color, distillation fractions, etc, which are collectively called the ‘crude assay’. This signature varies between oil blends regionally and even locally, with each blend being made up from a mixture of oil ‘streams’ with their own physical properties. The identity of a specific quality of oil can be easily masked by blending it in varying proportions with other blends and/or with refined products such as fuel oil, refinery slop or diesel. When done, the origin is difficult to positively identify via physical analysis.
Crude and refined oils can also be chemically analyzed to determine their molecular composition using a gas chromatograph (GC) which measures the mol% of each component. While the GC data is often used to differentiate between individual reservoir fluids at the field level, its limitation is that the signatures are insufficiently unique to differentiate between oil types once multiple streams are blended. Thus if a smuggler’s objective is to sell their oil by adding a small volume to a far larger volume from a legitimate source, once mixed it becomes very difficult to forensically verify that the addition ever took place.
To address this issue, the industry has developed a paper trail for traded oil in the form of ‘bills of lading’ (BoL) accompanying each cargo. Each BoL contains information about the physical properties and the origin of the cargo, and this document is required for the owner, shipper and eventual buyer to get bank financing and insurance for their trade. Tracking the BOL trail can in theory trace the oil to its origin, but this paper trail may be subject to forgery or tampering. Furthermore collating the paper trail can be a cumbersome process, since trades occur between international jurisdictions which may offer them legal protection and confidentiality with which to conduct their affairs.
Assuming all of the above are in order, today’s oil trade practices still convey little information about the product’s history beyond the terminal the oil was loaded at, the vessel that carried it, and the storage terminal it was delivered to. To exceed this level of resolution and determine which region, field or even well the oil originated from would require a new method of accounting, but how much value would the market willing to allocate to this information today – information which historically has not been considered as particularly important?
Application of Tracer Technologies
Tracer technologies can remedy the above problem. Our team reviewed three technologies which are able to positively identify the origin of crude or refined oil products, and thereby potentially delineate the exact supply chain traversed if they are introduced far enough upstream. These technologies are:
Table 1 below summarizes the characteristics of each, demonstrating that overall DNA nanotags carry the largest amount of unique information and are easiest to implement in the field upstream of the refinery, or downstream of the refinery through the fuel products distribution network.
It is assumed that the crude oil refining process, which elevates crude up to 600°F, is likely to destroy the data integrity of all three tag types. Therefore we should consider the applications at both the upstream and downstream supply chains independently.
Using Nanoparticles to Trace Crude
Although chemical tracers are the most prevalently deployed in the industry today, their suitability for routine large scale crude tracking is poor due to their high cost and limited permutations of the chemical signature available.
Crude can be tagged with nanoparticles at any point in the supply chain (upstream or downstream), either delivered through a chemical injection manifold mounted on a pipeline, or by adding the nanoparticle suspension to a turbulent flow path or mixing vessel (continuously circulating the crude to ensure complete mixing and avoid settling of sediments). The nanoparticles may be designed to encode any of the information types shown in Table 2, and if necessary this data may be encrypted for additional security. In this way, the nanotags can be considered as equivalent to a barcode that you find nowadays on any retail goods, the unique DNA code containing about the same amount of information.
Researchers from the Swiss Federal Institute of Technology in Zürich (ETH, in the German acronym) have announced that they’ve successfully produced a marker for olive oil, using a tiny piece of artificial genetic material. The tag, made of synthetic DNA coated with silica (which prevents the DNA from degrading), measures less than a nanometer (a millionth of a millimeter). It cannot be replaced or removed from the product and doesn’t alter its color or flavor. Taking a small sample of olive oil and analyzing it in a laboratory can confirm its origin and determine whether any tampering has taken place, with the addition of other types of oil. The tags can also be applied to crude and refined oils.
“The method is equivalent to a label that cannot be removed,” says Robert Grass, a chemist at ETH Zurich, in a statement announcing the invention. He added that “with DNA, there are millions of options that can be used as codes.” The nano-tags would be safe to consume, invisible, and inexpensive. The amount of oil-tag additive necessary to safeguard the entire olive oil product of Italy would be “just a few grams.”
“Unbelievably small quantities of particles down to a millionth of a gram per litre were enough to carry out the authenticity tests for the oil products,” they wrote in the paper. With a concentration that low, the particles must be magnetized by attaching iron oxide to them, which allow the tags to be sampled from their suspension in the oil phase.
Designing a Crude Oil Certification Scheme
A global certification scheme would ideally piggy-back on the existing trade mechanisms, being minimally invasive and be difficult to hack. This system would tag “good oil” by definition as it requires the willingness of participants to tag their oil.
We envisage a system whereby co-operating oil producers (IOC’s, NOC’s, regulatory authorities) would tag their oil with the blend’s unique ID such as the loading terminal, date and field of origin. Global regulation would then require financing institutions and insurance companies to demand the cargos tag in order to establish legitimacy of the cargo and validate each trade. The sampling for nanoparticles would be done at the loading and unloading terminals using existing inspection bodies such as Bureau Veritas or DNV, supported by analytical firms such as SGS who already have presence at almost every port to perform the physical assays.
Recovered samples could either be tested in the field using handheld devices, or couriered to an authorized independent laboratory to conduct the analysis (ie to read the DNA tag and decode the message). Any lab analysis should not exceed the loading/unloading time of the cargo, ie less than 24 hours.
Participants in this scheme would need to appoint a body to regulate nanotag manufacturers and issue certificates of compliance, and retain custody of standards and encryption codes. This is no different to how passport or currency printing agencies work today.
Participation in this scheme could be either on a global level in which case international agencies such as the UN, OPEC, or IEA would preferably oversee, and for which industry wide bodies such as the American Petroleum Institute could define international standards. Alternatively the scheme could be introduced under an opt-in method similar to ‘Fair Trade’ labels on food products, potentially even attracting a market premium by introducing a new market segment for those who prefer home-sourced gasoline.
The former approach is cumbersome and may prove difficult to achieve, due to factors such as misalignment of incentives, rivalries, and concerns around commercial confidentiality. The latter option is more practical since participants could sign up voluntarily for such a scheme to certify their oil as “good oil”. Such an opt-in scheme would need to be reinforced with PR campaigns to create customer awareness and emphasize the benefits to participants as well as the broader end user market place. There remain concerns about the willingness of participants to sign-up for any scheme whether globally enforced or voluntary.
Challenges with Oil Tagging Implementation
There are challenges with introducing oil tagging technologies to fight smuggling or oil theft in ungoverned or non-compliant states. In the case of pinpointed application for ISIS or tagging “bad oil” from embargoed states, gaining access to the physical oil can be dangerous, expensive and diplomatically/militarily risky. Even if access is secured, the nature of dispersed smuggling networks is that they could rapidly reconfigure to circumvent the system as soon as it is discovered.
Tagging Good oil
The corollary of tagging illegal oil is to establish a scheme to certify “good oil”, which switches the problem to one of one of willingness to comply, though this also brings with it challenges of scale. According to the BP Statistical Review ~55 million bopd is traded, and according to our team’s expert interviews > 97% of this volume is traded legitimately. Tagging the good barrels will cost ~$500 m/year for the nanoparticles alone without the balance-of-system costs such as process hardware, lab tests, personnel cost, etc.
Willingness of participants to tag their oil is also an issue. OPEC in particular views itself as the regulator of Middle East oil markets and may be averse to external intervention, particularly by Western consumer nations. In addition, national producers view oil as a sovereign commodity and may be unwilling to subject it to a global certification scheme that does not benefit them commercially or politically, while imposing an extra cost on them.
Alternative Certification Mechanisms: An Environmental Tax Framework
An alternative method of tagging oil to separate “good” from “bad” oil is to separate “clean” from “dirty” oil for carbon footprint accounting. This scheme could be applicable to introducing a carbon tax on consumers (ie refiners) in proportion to the amount of clean and dirty oil they use. Those refiners would then pass the cost downstream to consumers, thereby rewarding buyers of environmentally less polluting oil.
This mechanism creates an incentive for OPEC whose oil has a relatively low lifecycle carbon footprint and a lower energy balance (energy-in-for-energy-out) compared to for example Canadian tar sands and shale oil. If those OPEC producers are given the opportunity to differentiate their oil in the marketplace and reward their consumers for buying “clean” oil, then they are more likely to participate in such a certification scheme.
The participation of OPEC through this scheme would reinforce the participation of Western producers, refineries, financing institutions, and insurance companies who are more likely to comply with or without such a scheme.
While technological solutions such as tagging crude oil or refined products at source could provide a viable means for assuring the product’s origin, and thus impeding illicit sales to foreign markets, this measure must be integrated into a broader framework of global economic solutions to prevent the illicit oil trade situation from worsening.
Like any strategy which serves the “common good” however, oil tagging likely has too few direct beneficiaries who would be willing to pay for it. As such a significant change in state or corporate policy would be required to catalyze the adoption of an international oil tagging and tracking process. The concerns raised around the ISIS conflicts and funding are one such catalyst which could justify localized deployment of oil tagging trial technology as a measure to prevent or limit oil smuggling.
In the wider scenario, the introduction of a global oil trade assurance mechanism would lend valuable transparency to the industry, and may alleviate consumer suspicion towards international oil producing companies, while offering buyers the opportunity to selectively source their “Fairtrade gas” if a market can be demonstrated to exist for such a product.
The ongoing conflict in the Middle East and concerns about future instabilities in this region represent the best opportunity for international governments to propose regulations for oil tracking using a new international standard, particularly if the scheme can be justified on the basis of countering terrorist states and enforcing international sanctions. Although such a scheme is potentially costly, it need initially only be introduced to crude and refined fuels production from “good oil countries” in geographically unstable regions such as the Middle East. The costs could be offset by the benefits of reduced military intervention, and greater transparency across the trading and financing infrastructure, all the way to the end consumer who in theory could be informed exactly where their tank of fuel originated from.
We welcome the views of fellow OilPro’s on the above concept, particularly oil traders, NOC or OPEC staff, and government agency employees who would be most impacted by such a mechanism.