MARIANNA PARRAGA
EL UNIVERSAL

The United States market was shocked at the announcement that Citgo Petroleum Corporation, the US refining branch of Venezuelan state oil holding Pdvsa, would cut fuel by 14 percent provision to gas stations, thus hitting 1,800 Citgo branded locations.

However, for Citgo's parent company this is a rescue action to prevent Citgo from continuing to spend million US dollars to purchase fuel in the spot market.

Pdvsa CEO and Venezuelan Energy and Petroleum Minister Rafael Ramírez told El Universal in a phone conversation that in 2004 purchases of crude oil and oil by-products by Pdvsa branches abroad amounted to USD 18 billion, with Citgo purchases of finished fuel totaling USD 6 billion.
 
In 2005, Citgo Marketing and Supply Division recorded losses of USD 201 million, while in the first half of 2006 losses soared to USD 207 million, because of purchases of finished fuel.

Ramírez explained that losses came because the benchmark they use to purchase finished fuel in the spot market is quoted higher than the price gas stations pay Citgo for the fuel, under the agreements Citgo has signed.

Reforming such agreements could have been only a partial solution. Anyway, the logistics to deliver fuel to locations far from refining facilities is a heavy burden hard to mitigate.

In short, rather than fighting for increased supply -perhaps even from Venezuela-based refineries- allowing Citgo to provide service to its 14,000 branded gas stations, the move the company adopted was to realign its retail chain in order to keep the locations closer to refining facilities and eliminate the purchase of 130,000 bpd of gasoline this year. Therefore, in the short and middle term, Pdvsa board of directors does not have plans to replace the gas stations that are be left unattended by others located closer to refining facilities.

The agreement Citgo signed with gas stations comprising the 7 Eleven network in several US states expires in September. Pdvsa CEO explained that cuts are to be precisely implemented in this chain, as well in other few locations quite apart from Citgo refining circuit.

He ruled out the possibility that Citgo may be sued by gas stations owners, because they are free to hire other suppliers. Neither Pdvsa nor Citgo are to hinder such negotiations.

When asked about likely cuts in crude oil purchases both by Citgo and Ruhr Oel (Germany), he conceded this a business harder to realign, as all of the refineries purchasing crude oil from third parties are highly profitable now.

Even though the action Citgo board of directors took came in parallel to moves to sell three refining plants and fears in Washington that Venezuela may cut oil sales to the US, Ramírez stressed this is not a political decision.

He confirmed that this year Citgo will no longer be present in 67 of the 265 terminals it currently owns or rents, but Ramírez insisted that the Pdvsa board of directors recommend such adjustments as early as 1999.

"Should the refineries -Lake Charles, Paulsboro and Savannah- be sold, long-term Venezuelan crude oil supply agreements will be kept. Our core business in the United States is to place crude oil and by-products, not necessarily to own facilities."

Pdvsa expects Citgo to declare over USD 800 million in dividends this year. In the first half, dividends amounted to USD 400 million.

Translated by Maryflor Suárez R.

Marianna Parraga
EL UNIVERSAL