Citgo Won't Sell Gas to U.S. Stations

July 12, 2006, 5:38PM

Citgo Won't Sell Gas to U.S. Stations
By NATALIE OBIKO PEARSON AP Business Writer
© 2006 The Associated Press

CARACAS, Venezuela — Venezuela-owned Citgo Petroleum Corp. has decided to stop distributing gasoline to 1,800 independently owned U.S. stations, shedding a lackluster segment of its business while forcing the owners of those stations to find other suppliers.

While it may create some logistical headaches for gasoline retailers in the short term, the move should not have any impact 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 U.S. This is less profitable than selling gasoline directly from its 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., according to a statement late Tuesday.

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 affect, Citgo spokesman Fernando Garay said Wednesday.

The impact on affected Citgo-branded stations will depend a lot on local market conditions, said John Eichberger, director of motor fuels at the National Association of Convenience Stores, a trade group that represents independently owned gas stations.

Station owners in competitive markets shouldn't have any problem finding a new supplier who offers them comparable contract terms and may even cover the costs of installing new signs and canopies, Eichberger said. But those selling gasoline in more remote areas will presumably have fewer good options.

One alternative is to shun the major gasoline brands altogether and purchase fuel from an independent distributor. "Unbranded stations typically get a better price at wholesale," Eichberger said. "But the inherent risk is you lose your spot in the pecking order in getting product if there's a shortage."

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 Wednesday he knew of no plans for Citgo to sell its U.S. refineries.

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

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

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