CITGO HALTS GASOLINE SUPPLY

Independently owned stations in U.S. affected

Posted on Thu, Jul. 13, 2006

Associated Press

CARACAS, Venezuela -- Venezuela-owned Citgo Petroleum Corp. has decided to stop distributing gasoline to 1,800 independently owned U.S. stations, including all Citgo stations in Kentucky and nine other states.

In doing so, the company is shedding a lackluster segment of its business while forcing the owners of those stations to find other suppliers.

Citgo operates four stations in Lexington as well as two in Nicholasville and one each in Georgetown, Midway, Richmond, Winchester and Stamping Ground, according to the company's Web site.

While Citgo's decision may create some logistical headaches for gasoline retailers in the short term, the move should not have any effect on the nation's overall fuel supply.

Citgo, which is wholly owned by Venezuela's state oil company, currently has to purchase 130,000 barrels a day from third parties in order to meet its service contracts at 13,100 Citgo-branded stations across the United States. This is less profitable than selling gasoline directly from its own refineries.

Instead, the Houston-based company has decided to sell to retailers only the 750,000 barrels a day that it produces at three U.S. refineries in Lake Charles, La., Corpus Christi, Texas, and Lemont, Ill.

As a result, the Citgo brand will disappear entirely from 10 states and be less common in four additional states by March 2007, when the change goes into effect, Citgo spokesman Fernando Garay said yesterday.

Venezuelan President Hugo Chavez has long claimed that parts of Citgo's business produce losses for Venezuela and constitute a subsidy for the U.S. economy.

Oil Minister Rafael Ramirez has also charged that Citgo isn't profitable enough and that its parent, state-owned Petroleos de Venezuela SA, or PDVSA, could at some point sell off some of the company's refineries. Garay said yesterday he knew of no plans for Citgo to sell its U.S. refineries.

But in a sign of the apparently lucrative relationship between the two companies, PDVSA announced yesterday that it has so far earned $400 million in dividends this year from Citgo.

The other states where Citgo will stop selling gasoline are Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Indiana will also stop receiving shipments.

Venezuela is the world's fifth-largest oil exporter, and the United States is its top buyer. The United States relied on Venezuela for about 11 percent of its oil supply in 2005.