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Instability In Venezuela Being Watched Closely

Clear implications for Puerto Rico and the Caribbean because of dependence on massive imports of petroleum products from there


April 18, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The fluid situation in Venezuela is being watched closely, not only by the petroleum industry but by almost every oil-consuming territory in the Caribbean.

As the uncertainty unfolded last week, with President Hugo Chavez out of office one day, another de facto president Pedro Carmona in office for less than one day and, Chavez back in the saddle again on the third day, shock waves spread throughout the world causing considerable instability in the oil business.

Nowhere was the drama felt more than in the Caribbean where most of the countries of the region benefit from preferential prices from Venezuela through the state-owned Petroleos de Venezuela, known universally as PDVSA.

From countries in Central America and throughout the insular Caribbean, uncertainty spread as people and their governments sought reassurances that their vital supplies were not going to be disrupted. Puerto Rico was certainly not an exception because of the island’s still significant consumption of supplies from Venezuela.

Last year, according to the Planning Board, Puerto Rico imported $609.4 million from Venezuela, mainly in petroleum products. That figure was actually down from $801.6 million in 2000.

But industry experts indicate that the drop does not reflect reduced consumption but changes in routes of supply. PDVSA is a joint partner in the gigantic oil refinery in St. Croix in the U.S. Virgin Islands (USVI), now called Hovensa (Hess Oil Venezuela).

Puerto Rico imported $793.5 million from the USVI last year, mainly petroleum products from Hovensa, up significantly from $654.2 million in 2000.

In addition to being the major supplier of petroleum to the Puerto Rico Electrical & Power Authority (Prepa), PDVSA is also the parent company of Citgo which expanded its retail operations into Puerto Rico last year. In its first eight months of operation on the island, Citgo’s 10 service stations sold 81 million gallons of gasoline and 13 million gallons of diesel (CB Dec. 13, 2001). Citgo is so pleased with its success that it is planning 15 more service stations in Puerto Rico.

The initial resignation of Chavez last week had been prefaced by a bitter and protracted strike in PDVSA during which production dropped from 2.5 million barrels a day to 1.4 million.

Citgo being watched closely

Industry analysts are watching the headquarters operations of Citgo in Tulsa, Okla. For signs of the impact of the sudden changes at home. Citgo’s CEO is a Venezuelan general, Oswaldo Contreras. Although described as a friend of Chavez who appointed him, Contreras, who is a nuclear engineer trained at the University of Michigan, gets generally favorable marks in the industry for his vision and running Citgo as a commercial company. He is credited with expanding Citgo’s retail sales in Latin America, starting with Puerto Rico.

Venezuela ships about one million gallons of crude oil to the U.S. a day and about half of that goes to Citgo. It has two refineries on the East Coast, three others in Illinois, Louisiana, and Texas and is partner in another Texas refinery. With 13,800 retail outlets, it is the largest operator in the U.S. It reported $317 million in net income last year on sales revenue of $19.6 billion.

Hovensa was established in St. Croix in 1966 by the legendary Leon Hess. At that time it was dubbed the largest oil refinery in the free world with a production of 40,000 barrels a day. That figure has now grown to 115,000 barrels a day. In the beginning it employed 5,000 and today, because of mechanization, it still employs 1,600 and, since its merger in 1998, has contributed $625 million in payroll and $150 million in taxes to the USVI economy.

This Caribbean Business article appears courtesy of Casiano Communications.
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