Development of tamper-proof, safe and durable tracking system for LPG cylinders from the filling plant to end user and back.

Description of the Challenge

The Liquefied Petroleum Gas (LPG) energy sector is marred with a myriad of challenges ranging from unscrupulous dealers illegally refilling and trading in branded LPG cylinders. The illegal re-fillers tamper with the cylinders compromising their safety features, under fill and use gas from untraceable and sometimes adulterated. Furthermore, some of the illegal re-fillers use gas siphoned from LPG bulk tankers on transit. The cylinders in illegal circulation are not inspected and serviced as required. These illegal re-fillers operate in unsafe conditions hence posing a big risk to life. As a result frequent catastrophic failures of the refilling systems and the non-serviced cylinders are reported. These malpractices undermine the business of the company whose cylinders are so used, exposes such companies to uncalled for litigation and further erodes customers’ satisfaction & confidence in the company’s products. Additionally, the practice denies the company value for its investments while the customers do not get value for the gas product purchased.

The LPG Cylinder safety standards require that a cylinder is inspected  every 8 years for a maximum of three times during its 24years lifetime  to confirm its suitability for use, and allow for  servicing as necessary. In Kenya, the law, Legal Notice No. 100, Petroleum Act. No. 2 of 2019 among other requirements, obligates LPG companies to track their cylinders, monitor the retail point of sale, and ensure that only authorized distributors’ trade with their branded cylinders.

The current system lacks adequate traceability measures and hence a fertile ground for malpractices among competitors as well as illegal traders. The system allows for theft and rebranding of competitor’s cylinders; hoarding of competitor’s cylinders hence curtailing the penetration and availability of the company-branded cylinders to the public and further creates a rich ground for illegal re-filling of the cylinders with substandard gas which could also be below the required quantities. The undesirable consequences range from low rotation of branded cylinders; provision of substandard gas to the customers and in worst case scenarios explosions occasioned by un-serviced cylinders which could also be tampered with. Furthermore, the system limits the company’s ability to track the cylinders and develop that crucial customer data for data analytics to enhance decision making.

The cylinders in circulation amount to a significant investment of company’s resources as they are based on the company’s target market size. Further, the supporting gas distribution system is designed to match the number of cylinders in circulation. The loss of cylinders to competitors and the illegal dealers causes considerable distortions of the target market, making it difficult to make sound business decisions. The loss therefore becomes a major impediment to enhanced investment in the sector and consequently inhibits the widespread adoption of LPG as an alternative to biomass source of energy. The LPG domestic uses include cooking, heating, lighting and barbecue.

Challenge Owner's Business Model

The authorized LPG companies manufacture and brand their own cylinders. They have refilling stations at strategic locations in the country and distribute the refilled cylinders through  petrol stations and a network of authorized retail outlets.  Often, retail outlets are micro, small and medium enterprises (MSMEs) who are engaged in other businesses alongside that of trading in the gas. Outlets receive empty cylinders from customers as a condition for purchase and exchange with a filled one. It is notable that households use 3 kg, 6 kg and 13 kg size cylinders. It is cylinders in this size range that are mostly traded in the illegal market. 

Impact

The UN Sustainable Development Goal (SDG) 7 is to ensure access to affordable, reliable, sustainable and modern energy for all. Natural gas is considered a better alternative to biomass and serves to increase access to energy.  In Kenya, for example, consumption of LPG is approximately 400,000 metric tons per annum and this is used by only an approximate 20% of the households (NCI, 2021). Approximately, 75 % of households rely on firewood and charcoal as their primary source of cooking energy. These sources are risky as they significantly expose the users to various health risks through indoor air pollution, reduced forests and tree cover. In Eastern Africa region, natural gas serves to increase access to clean energy to the region’s population. Consumption for LPG is estimated as 950,000 Metric tons in the region.  The solution to the LPG gas traceability problem will contribute towards shifting millions of households from using firewood and charcoal to LPG as the primary cooking source of energy in the region and ensure safety in the use of LPG.  Further, the solution, will contribute towards attainment of SDG7 among others.

Solution Required

One of the ways of solving this problem is by creating a system of tracing the cylinders. A leading oil marketing company would like to develop a system of tracing the 3, 6, and 13 kg gas cylinders, so as to establish when and where the illegal filling takes place. In addition, the solution will enable the company to capture crucial customer data for decision making including and not limited to production capacities, prospective new future market segments, customer response and attitude to their products as compared to the competitor etc. The solution should therefore meet the following minimum requirements.

à      Investment cost per cylinder during its  life time should not exceed  US$7, or the equivalent in local currencies;

à      The solution should not be obvious to the customers and the public;

à      In the event that the proposed solution is electronic, it should comply with “Atmospheres Explosive” (ATEX) certifications; and

à      Take into account the LPG cylinder safety standards requirement which requires a cylinder to be inspected every 8 years, for a maximum of three times during its life time to confirm its suitability for use and allow for servicing as necessary.