Signs Point To Citgo Shutdown?
There are rumblings that the Venezuelan oil company is pulling the plug on the brand. The signs are boiling to the surface. Yet, you won’t read about any of it in the New York Times, Wall Street Journal or Houston Chronicle. Why not? It is a big story, almost on the scale of Enron. Citgo was given tax breaks and other incentives to move it’s headquarters from Tulsa to Houston two and a half years ago. Was it worth it?
The first big indicator that Citgo was shutting down came last year, with the sale of its 41 percent stake in the CITGO-Lyondell joint-venture refinery in Houston. CITGO now operates 859,000 barrels per day of crude refining capacity. But Hugo Chavez signed agreements for the lion’s share of that — some 500,000 bpd to China. The deal was penned last year and both nations are ramping up oil tankers needed for the long hall to China (30 days round-trip) as compared to the 72-hour trip across the Gulf of Mexico.
Citgo’s refineries have been designed to process a high percentage of heavy sour crude from Venezuela, supplied by their owner PDVSA, the Hugo Chavez state-owned oil company. Heavy sour crude typically sells at a 25 to 35 percent discount to lighter, sweeter crude such as the benchmarks West Texas Intermediate (WTI) and Brent. So when the price per barrel is $59, Citgo’s oil is selling at $39.
Citgo is deferring investments needed to meet new low sulfur diesel specifications at its Corpus Christi and Lemont refineries until later in the decade. Many Citgo stations don’t offer the low sulfur diesel or even the high octane gas.
That is what organizations do when they intend to sell their assets. They put off major investments, knowing they will not ever recoup the expenses if sold within months or a year. There are pending federal criminal counts against the Corpus Christi plant. The new owners will be able to negotiate the terms away.
Mick Gregory has been following the demise of a once major brand name in retail oil products, as the fruits of nationalization under the Venezuelan communist experiment take hold. Communism: 100 years of failure proves nothing. Just ask Hugo.