SINGAPORE: On Dec 15, a 40-year-old Shell employee admitted in court to playing a part in the largest marine fuel heist from the petroleum giant's Pulau Bukom refinery.
The Indian national was among almost a dozen Shell employees charged over the scheme, and is the first to plead guilty. Also implicated are employees of a major Singapore fuel supplier, a London-listed firm that certifies fuel quantities, and a Vietnamese shipping company.
Reuters reported in 2018 that about S$200 million worth of oil was stolen over several years from the Shell refinery, which is its largest petrochemical production and export centre in the Asia-Pacific.
Employees on the ground used methods like moving the misappropriated oil through unmonitored routes, timing the illegal loading of oil with legitimate transfers, and tampering with meters that measure oil passing through.
READ: Former Shell employee admits conspiring to embezzle S$49m worth of gas oil from Pulau Bukom site
But the Shell incident is just the pinnacle of the often small-time but widespread crime that is marine fuel theft.
Marine industry insiders interviewed by CNA said this type of theft has been going on in Singapore and around the world since oil prices started rising in the late 90s. CNA spoke to four industry experts, some on the condition of anonymity because they were sharing inside information from their previous jobs.
In the past, heavy fuel oil, which is used by large tankers and transacted in huge quantities, was the most common type of marine fuel to be pilfered, they said. But as fuel prices dipped, syndicates targeted marine gas oil, a more expensive type of diesel used in smaller vessels and land vehicles.
Singapore, as the world's largest bunkering – or refuelling – port, is susceptible to these thefts, the insiders said, adding that ships like to refuel here due to its safe harbours and location at the midway point of one of the world's busiest shipping routes.
In 2019, more than 47 million tonnes of marine fuel was sold in Singapore.
The industry insiders said one common scheme involves fuel suppliers shortchanging customers, meaning delivering less fuel than what was promised, to maximise profits. The excess fuel will be sold on the black market, outside of Singapore's port limits.
Another scheme involves members of a ship's crew misappropriating their own fuel without their employer's knowledge, the insiders said. The crew would declare excess fuel as used and sell it to foreign tugboats modified to carry illicit oil. These tugboats would then sell it on to other vessels on the black market.
The last scheme is perhaps the most direct. The insiders said thieves would sometimes board ships, threaten the captain and instruct him to sail out of Singapore waters to a spot where patrols are rare. Once there, the ship's fuel would be siphoned off to another vessel, before the ship is let go.
According to Reuters, citing officials, the illegal marine fuel trade in Southeast Asia is worth more than S$2 billion a year.
It is fuelled by a highly competitive bunkering industry, which sources oil at a fixed price, as well as lowly-paid crew members looking to earn side income through deep-seated illegal methods, the insiders told CNA.
But it is difficult to stop as equipment used to measure fuel transfers can be tampered with, the insiders said. Discrepancies in fuel quantities can also be deceptively attributed to factors like sea conditions, they added.
CNA contacted six licensed bunker suppliers and a major bunker surveyor, all of whom did not respond to requests for comment.
The Maritime and Port Authority of Singapore (MPA) told CNA that it undertakes "round-the-clock" patrols in Singapore port waters to ensure compliance to port regulations concerning bunkering.
"Working with relevant enforcement agencies to take firm actions against errant companies that engage in fuel fraud, MPA will report any illegal transfer of oil it detects during patrols to the Police Coast Guard for investigations," it said.
The police told CNA that it takes a "firm stance" on the misappropriation of marine gas oil in Singapore territorial waters.
"Regular patrols are conducted to deter and detect illegal activities," it said.
MILO AND CAPPUCCINO
A maritime consultant, who for the past 15 years has been deeply involved with local industry regulations, told CNA that marine fuel theft has been "going on since ships started burning oil".
"We've come across instances where it’s institutional, with employees usually just carrying out instructions," said Max (not his real name).
This is usually the case when MPA revokes bunker craft operator licences after investigations find company-wide malpractices, Max said.
Bunker suppliers, also called fuel traders, are lured into this illicit practice so they can price their products competitively, amid an oversaturated local market with more than 40 players, Max explained.
"Oil is a commodity; there’s a prevailing price globally and you cannot get it below that price anywhere else," he said.
"And then there are additional costs, like barging costs to deliver fuel to your ship. The market has been forced to this because they say there are too many small players in Singapore."
In the past, Max said bunker suppliers would overstate the amount of fuel they pumped into ships, manipulating the conversions between mass (the unit at which fuel is bought) and volume (the unit that measures fuel received).
Max said suppliers would also bribe surveyors, who measure remaining fuel on board ships, to understate this figure, allowing the suppliers to declare that they were supplying more fuel than was actually the case.
The fuel being pumped in could also be adulterated with mud or air to reduce actual quantities, Max said. The industry terms for these are "milo" and "cappuccino", respectively.
But in 2017, these methods took a hit as MPA mandated the use of mass flow meters on bunker vessels to automatically and accurately measure the quantity of fuel delivered.
MPA said licensed bunker suppliers and bunker craft operators are required to use mass flow meters under SS 648, a code of practice related to the use of the meters.
Another code of practice on bunkering, SS 600, also sets out best practices for documentation and equipment requirements, as well as verification procedures during bunkering operations.
"The use of MFM provides assurance to both buyers and suppliers on the delivered quantity of bunker and enhances transparency in the bunkering process," MPA said.
According to one marine consultancy, this is likely to have saved buyers about S$2.3 billion so far in eradicating traditional malpractices like short-selling or adulterating fuel.
"Short deliveries are not something that was unique to Singapore, and it is something that still happens in many ports today," BLUE Insight director Adrian Tolson was quoted as saying in an October 2020 report by maritime publication Ship & Bunker.
"However, Singapore remains the only port to date that has put the standards in place to effectively tackle such malpractice and demonstrate a willingness to enforce those rules."
Even then, Max said some bunker suppliers still tried to manipulate the yellow-cased meters by sticking magnets on them. This allowed them to achieve a fuel shortfall of up to 27 per cent, he said.
"They were buying strong industrial magnets, the size of an iPad, for S$80 to S$300 and painting them yellow," he said, adding that they used yellow insulating tape to attach the magnets.
"Imagine if you paid for 1L of Coke and I only gave you 770ml. The average cheating rate was anything between 10 to 20 per cent."
Max said MPA and Police Coast Guard officers have caught crew on board bunker vessels like this red-handed. This can lead to a suspension of the bunker supplier's licence.
The MPA announced in October last year that it had revoked Inter-Pacific Petroleum's bunker craft operator licence after it found "magnetic interferences" affecting numerous mass flow meter readings across its bunker tankers.
This is the most recent case of revocation reported by the MPA.
"Inter-Pacific had also failed to ensure that its employees, including its cargo officers, comply with the terms and conditions of its licence," MPA said.
READ: Hin Leong’s financial woes have ‘no serious impact’ on Singapore’s oil trading, bunkering sectors: Agencies
MPA told CNA that SS 648 also stipulates that regular checks be conducted on the mass flow meters to ensure that they are functioning properly, and allows bunker buyers to lodge quality and quantity disputes within 30 days of receiving the fuel.
"MPA will either have officers present to oversee these verifications or require the test reports to be submitted," it said.
"MPA investigates all such complaints it receives and takes actions against errant suppliers if required. We will not hesitate to suspend or revoke bunker supply or craft licences should there be any wrongdoing, as we have done so before."
Nevertheless, Max said the smallest bunkering players face the highest cost pressures.
"They don’t have synergies or economies of scale, but they still need to maintain their customer base, so some of them resort to institutionalised cheating," he said.
The bunker suppliers then sell the excess fuel outside Singapore's port limits, often to Indonesian vessels near the Riau islands, Max said.
Crew of these vessels are often on the lookout for cheaper fuel in a country where oil prices are state-controlled, he explained.
Ship crew themselves can also make a quick buck by declaring to their employers that excess fuel on board has been used up, before selling it on the black market.
The numbers are easy to manipulate as they are often small amounts, with ships sometimes using more fuel for certain activities or when the current is strong, the insiders said.
"The shipping companies will have no clue," said Mr Felix Suresh, a team leader at maritime security firm Securistate with almost a decade of experience protecting ships against piracy.
"They choose not to know. How are they going to manage? Once the ship is out at sea, it all falls on the captain. You have to trust the captain."
Ships will usually sell misappropriated fuel to foreign modified tugboats or fishing trawlers off the southeastern tip of Peninsular Malaysia, just before they enter Singapore's congested shipping lanes, Mr Suresh said.
These tugboats, modified to hold oil in their buoyancy spaces, would come alongside willing vessels and strike a deal with their crew, who are usually from the same country, Max said, calling it "syndicated shoplifting".
"The syndicates call it buy-back; the fuel thief pays the complicit crew of the ship to sell off their employers' fuels in return for a cash payment being their share of the loot," he explained.
The police announced in October last year that it had arrested 11 men for their suspected involvement in an illegal transaction of marine gas oil. Officers also seized a foreign-registered tugboat for investigations.
This is the most recent case involving illegal transactions of marine gas oil reported by the police.
"Preliminary investigations revealed that the crew members of the marine service provider’s craft are believed to have misappropriated the marine gas oil and sold it to the crew members of the foreign-registered tugboat," it said.
Some of the misappropriated oil will also end up being "openly traded" as diesel at villages in Indonesia and the region, one maritime security expert who worked in Singapore for four years told CNA.
"One trip to Bintan outside the tourist area ... you can buy petrol in water bottles from the roadside to fill your scooter," said Bob (not his real name). "This cannot be a regulated, taxed product."
While in Singapore, Bob said he "only skirted the edges" of the illegal fuel trading scene, but noted that "it was clearly going on on a mass scale".
As part of an investigation for a ship owner, Mr Suresh said he boarded a vessel in Singapore waters and confirmed that its crew was misappropriating fuel, after finding extra tanks and a large amount of money.
Ultimately, Mr Suresh said this kind of shady operation will have to involve all crew members, with everyone getting a cut depending on their roles. Those who get caught are likely to have been ratted out by a colleague who feels he is not earning enough, he said.
"That money will be distributed among the engine crew. It’s tradition in shipping; it’s been going on and everyone knows, as long as you don’t get caught," he added.
ARMED ROBBERS SIPHONING OIL
The most sinister type of marine fuel theft, however, is when armed robbers board ships to siphon off fuel.
Mr Suresh said this also happens in the same area off the southeastern tip of Peninsular Malaysia, highlighting that ideal targets are bunker vessels that sit low in the water from being fully loaded with fuel.
Robbers would cut off the ship's communication, threaten the captain at knifepoint and order him to sail south to "no man's land". This is where territorial waters overlap and enforcement agencies rarely patrol.
"Another illegal bunker vessel will come alongside and transfer everything out. It will take maybe a day," Mr Suresh said. "Once that is done, they will tell the captain the ship can go."
Even if authorities are alerted, they will take time to locate the distressed ship in vast swathes of sea, he added. By then, the perpetrators would have completed the transfer and crossed territorial waters again.
This type of theft made headlines in 2014, when armed robbers siphoned fuel off 12 ships, eight of which had departed from Singapore. Many of these incidents took place in the South China Sea, off the east coast of Malaysia.
In some of the incidents, crew members were injured, tied or locked up. Others were held hostage or abandoned on a life raft.
The situation in 2014 was a sharp escalation from 2011, when only one such incident was reported, according to the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) Information Sharing Centre.
The centre released a special report in 2015 saying that the some of the perpetrators were part of "well-organised syndicates which sell illegally siphoned fuel or oil, or employ middle men as distribution channels, either a wholesaler or retailer themselves, to sell the stolen fuel or oil".
"Networking and word of mouth are the means of linkages between buyers and sellers for cheaper bunkers, not ruling out transnational organised syndicates being involved," the report added.
ReCAAP centre executive director Masafumi Kuroki told CNA that it has since seen a sharp decline in oil siphoning cases, possibly due to the arrest of the culprits involved in the 2013 and 2014 incidents.
In September 2014, the Singapore Police Coast Guard arrested 53 men involved in the illegal ship fuel trade, most of whom had siphoned fuel or oil from their own vessels.
"ReCAAP Information Sharing Centre has been emphasising that just as it is vital for the shipping industry to make timely reports, it is also important for law enforcement to take swift action to bring the perpetrators to justice as this would serve as a deterrence," Mr Kuroki said.
"Another factor could be economic. From 2016 up to today, oil price has been decreasing, and we have had no report of oil siphoning."
TURNING A BLIND EYE
Decreasing oil prices could also explain why it seems like fewer bunker suppliers are shortchanging customers nowadays, said Max, the maritime consultant.
He does not expect many cases in recent months due to COVID-19 and slowing demand for oil, saying that "you have got to steal double or triple the quantity just to make the same margin".
"If tomorrow gold prices fell to S$10 an ounce, goldsmiths can dismantle all their security alarms," he mused.
But Mr Suresh, the maritime security operator, said some shipping companies already choose to ignore fuel theft, either by bunker suppliers or their own employees, as they have bigger things to worry about.
"Illegal fuel trading is considered petty theft because the amount is not worth grumbling about," he said, adding that the effort required to investigate such thefts is not worthwhile.
"The perpetrators are also smart. They know that if it's small amounts, people will close one eye, thinking it is a miscalculation or wrong number written."
Bob, the maritime security expert, said fuel theft usually involves various individuals across different ships, making investigations more complex.
"The advantage of this method is it splits the investigation across multiple parties," he said.
"The ship charterer or owner finds fuel being stolen so they investigate. They find little or no evidence because they can’t see where it’s going. Maybe the crew gets changed and it stops, possibly temporarily until new crew get recruited into the scam."
STOPPING MARINE FUEL THEFT
Still, Max said major shipping companies are trying to deter fuel theft by installing onboard systems that closely track and monitor fuel that is going in, out and being consumed. This information is fed back to the firm's headquarters via the Internet.
"So apart from the ship’s officers, HQ is also keeping an eye on it," he said, although he acknowledged this will come with increased operating costs.
Shipping companies are also engaging more reputable bunker surveyors, whose employees are better paid and are thus more averse to bribes, as well as urging for meters to be more tamper-proof, he added.
Two major mass flow meter manufacturers did not respond to requests for comment.
In October last year, the Government announced that small- and medium-sized enterprises in the marine fuel sector will each get S$30,000 a year to help them go digital.
Senior Minister of State for Transport Chee Hong Tat said the sector will move towards using electronic bunker delivery notes to automate the collection of data using mass flow meters.
In another blow to potential cheaters, the electronic notes will allow the instantaneous transfer of bunkering data to both buyers and sellers, as well as reduce the possibility of human error.
In his speech at last year's Singapore International Bunkering Conference and Exhibition, Mr Chee acknowledged that while Singapore is "not perfect", it is committed to maintaining the integrity of its bunkering industry.
"We have our share of black sheep and cases of malpractice, but what is clear is that we will not hesitate to take firm action and revoke bunkering licences of errant companies," he stated.
Editor's note: This article was updated on Jan 19 with information from MPA.