Venezuela Cuts Supply to Some Citgo Gas Stations, for Greater Efficiency

Caracas, Venezuela, July 14, 2006—Citgo, a subsidiary of Venezuela’s state owned oil company PDVSA, announced yesterday that it plans to stop supplying approximately 1,800 of its 14,000 gas stations in the United States. The reason is that it no longer wants to purchase gasoline for these stations from refineries other than its own.

Currently Citgo purchases 130,000 barrels of gasoline per day from refiners outside of its own refinery network, in order to cover the demand that its 14,000 affiliated gas stations generate. Citgo decided that such purchases leave it at a disadvantage with respect to other gas station chains and thus decided to cut off supply to some of its stations.

Venezuela’s Minister of Petroleum and Energy, Rafael Ramirez, explained today that the cutback to Citgo stations does not in any way imply a cutback of Venezuelan crude oil to the United States.

The supply to the 1,800 gas stations that will no longer receive Citgo gasoline will be cut simply but not renewing their supply contracts. “We are avoiding contracts that do us harm,” said Ramirez.

Ramirez further clarified that, “There are no plans to leave the U.S. market, something that President Hugo Chavez has declared before.”

Alejandro Granado, the President of Citgo’s Board of Directors, said that with this measure “we are adjusting Citgo’s distribution capacity in accordance with the availability of production that PDVSA has in the United States and the Caribbean.” The measure would thus allow Citgo to better serve its clients, he added.

The decision was the result of an evaluation that was started when “the new PDVSA” was launched following the opposition-led shutdown of the oil industry in December 2002 to January 2003.

Felix Rodriguez, Citgo’s CEO explained that the move would mean that Citgo will focus its activities on its markets in the Northeast, the South and Mid-Atlantic, and part of the Mid-West, where its refineries are located. Citgo has eight refineries in the U.S., which are located in Lake Charles, Louisiana; Corpus Christi, Texas; and Lemont, Illinois.

Energy Minister Ramirez said that the contracts that forced Venezuela to purchase gasoline from non-Citgo refineries were typical of the types of businesses that the “4th Republic,” the pre-Chavez governments, engaged in. According to Ramirez, the former PDVSA management specifically sought to avoid profits, so it would not have to pay these to the Venezuelan state.

While emphatically denying that Venezuela has any plans to sell PDVSA or to reduce refining in the U.S., Ramirez did say that Citgo is considering the sale of one of its refineries because that refinery is not being supplied with Venezuelan crude. Venezuelan crude tends to be fairly heavy and refineries have to be especially equipped to handle this type of crude.

Currently Venezuela purchases crude elsewhere for this refinery, which results in significant losses for Citgo. Ramirez has previously explained that similar situations exist in Europe, such as its refinery in Germany, which uses Russian crude, at a heave expense to PDVSA.